Are you an old deer? Hold on! I’d better explain what I mean by that!
If we’re asked which country in the world is most associated with money management, we might well say: the Swiss.
Well, I was thinking of our Swiss friends this week, and of a traditional motto from the marbled halls of Swiss private banking: ‘Money is as timid as a deer’.
In other words, over the centuries, the Swiss have learned that ‘old money’ will remain with you as long as you are a safe haven - but will flee at the slightest hint of a threat.
This is why border roads into Switzerland still feature what look like clusters of manholes, but are actually shafts which, at the slightest hint of invasion by a foreign aggressor, can be loaded with explosives ready to destroy the roads.
Let us now flit back from Berne to Belfast, Bellaghy and Bellarena, where similar concerns about the safety of our money have been voiced this week, not by bankers, but by ordinary people concerned at new proposals for future measures designed to allow them even more freedom with their pension savings.
The chief proposal is for “annuity buyback”, a new option which would allow people who have already bought an annuity - the policy which converts your pension savings into a regular monthly income - to reverse that by converting their annuity back into a lump sum.
This would be a radical change, as currently annuity purchase is a ‘no going back’ transaction – once it’s done, it’s done for life.
Those in favour of annuity buyback think it might suit people whose health may have deteriorated since buying their annuity, and who now believe they may not have as long to reap the benefits of the purchase they made.
It may also suit anyone who’s simply changed their mind, and who’ve now decided they’d like to free their cash up again, to bequeath to their grandchildren or children.
And then there are those who have realised that they did not get the best annuity deal available, if for instance they did not shop around with an independent financial adviser to assist them.
The initial consultation on annuity buyback closed just over a week ago, on June 18. It’s an option that could be launched as early as April 2016 – with the enthusiastic backing of the new pensions minister Ros Altmann, who is known to be very much in favour of the concept.
However, a new report hot off the presses at the Institute and Faculty of Actuaries (IFoA) has poured cold water on any assumptions of consumer enthusiasm for the buyback idea – especially since Legal & General said that those doing so could expect to see 20 per cent wiped off the value of their (now second-hand) annuity.
The IFoA surveyed over 1,500 UK pensioners and found that most (55 per cent) would not want to sell their annuity for any reason, and nearly half (48 per cent) said they liked the certainty of receiving a set income for life.
The financial papers are currently following the debate on how exactly to value a ‘part-worn’ annuity, on how they should be sold (at a central exchange) and whether the company you bought your annuity from should be allowed to bid to have it back.
All this causes some jitters amongst us ‘shy deer’ who are, quite understandably, feeling a little ‘wombly’ as we try to predict whether we’d be better off selling or not. In fact, the report said 40 per cent believe there is a high risk they could end up worse off by cashing in.
The IFoA itself commented that the survey shows annuities will continue to play an important role in the pensions market, as people value the certainty they provide.
They have also pointed out that access to quality financial advice will be vital for pensioners in understanding the pros, the cons, and the inherent risks of annuity buyback. They said that, as many annuitants will be amongst the most vulnerable in society, it is crucial that the implications of choices are fully understood.
The IFoA also believes it will be some time before we can gauge how much demand there will be in practice for buying secondary annuities once the market has developed, and whether they will be good value for pensioners.
The government seems to agree: current thinking in 11 Downing Street foresees that taking advice would be mandatory for those selling an annuity worth £30,000 or more.
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 7188 6005
