Savings and Investments thread

wwaddick said:

Anybody know whether purchased life annuities compare rates-wise to pension based ones?

I believe they are the same. They are still based on life expectancy so I don't think it matters where the money comes from. 

I've thought about an annuity - currently I have 2 final salary pensions that I get and money in an HL Sipp that I drawdown monthly - one thing I've never understood is what happens to an annuity on death.  Does it just stop paying out or is there a residual value that gets paid to dependants?  With the SIPP in drawdow, obviously whats in the pot (on death) is left to my dependants.

Diebythesword said:

CafcWest said:

I've thought about an annuity - currently I have 2 final salary pensions that I get and money in an HL Sipp that I drawdown monthly - one thing I've never understood is what happens to an annuity on death.  Does it just stop paying out or is there a residual value that gets paid to dependants?  With the SIPP in drawdow, obviously whats in the pot (on death) is left to my dependants.

Isn’t the whole point of annuity is you effectively sell a chunk/all of your pension for a regular payment in perpetuity until you die? The agreement is between you and the annuity provider so would be complete when you die? 

You can get single life or joint life annuities.  Single life ends on death, joint life on death of both parties. 

There are other annuity options such as guarenteed period and value protection annuity, but these obviously cost more / provide a lower ROI. 

Choosing the right product is very specific to your circumstance and an IFA will more than pay for their fee to advise you properly based on circumstances and levels of risk appetite.  

PragueAddick said:

Diebythesword said:

us futures up again this morning. 

Jolly good. Might reach my next step target for selling more of my tech fund holdings.

And where then will I get growth from, you might reasonably ask. WelI I'm liking the performance of my Japanese funds (thanks to the Golfmeister for selecting good ones for me). And big things are expected from the new female PM, although there is an ongoing question whether she will be less a Japanese Thatcher (as she likes to portray herself) and more a Japanese Truss😱. 

Line no always go up....

Regarding your tech sales, Warren Buffet once said 'Selling your winners and holding your losers is like cutting the flowers and watering the weeds'.
Apple is his biggest stock holding still, despite his wariness of AI.

Ashers said:

golfaddick said:

wwaddick said:

Anybody know whether purchased life annuities compare rates-wise to pension based ones?

I believe they are the same. They are still based on life expectancy so I don't think it matters where the money comes from. 

The main difference is the tax treatment. A pension annuity is fully taxable as income at your marginal rates. The income from a PLA is effectively split in two. Part of the payment is treated as a return of your original capital and is not taxed, the remaining part is taxed as savings income (interest).

I agree, but I don't think any of that changes what rate of annuity you would receive......which was the question. 

I received an interesting email today from an investment company detailing a new investment opportunity via a Structured Product. As a financial adviser I receive a few of these a week & most I disregard but this one stood out.

I wont go into details of what a Structured Product is and I say very strongly that in no way is this an advertisement or inducement to buy. 

How would like a 16.2%pa return on your money ?  It's all above board and even allows for your investment to fall by 10% and still receive 16.2% pa.

The investment is in just 3 shares.....Apple, Meta and Microsoft. The investment is for 5 years, although it will end early (kick out) after an initial 12 month period, should all 3 shares be above 90% of their value at the start of the investment (early Dec).  

Edit - just seen that Microsoft has fallen 2% today, and Meta by 10% (nothing to do with this investment opportunity).

To add some context......investment plans like these usually return around 10%pa. Lower if it's just based on a single Index like the FTSE100 rather than a basket of individual shares. 

Never seen one paying more than 12%pa. 

valleynick66 said:

golfaddick said:

I received an interesting email today from an investment company detailing a new investment opportunity via a Structured Product. As a financial adviser I receive a few of these a week & most I disregard but this one stood out.

I wont go into details of what a Structured Product is and I say very strongly that in no way is this an advertisement or inducement to buy. 

How would like a 16.2%pa return on your money ?  It's all above board and even allows for your investment to fall by 10% and still receive 16.2% pa.

The investment is in just 3 shares.....Apple, Meta and Microsoft. The investment is for 5 years, although it will end early (kick out) after an initial 12 month period, should all 3 shares be above 90% of their value at the start of the investment (early Dec).  

Edit - just seen that Microsoft has fallen 2% today, and Meta by 10% (nothing to do with this investment opportunity).

To add some context......investment plans like these usually return around 10%pa. Lower if it's just based on a single Index like the FTSE100 rather than a basket of individual shares. 

Never seen one paying more than 12%pa. 

I’m not getting it. How are they making money if it stops after 1 year with assets either in profit or no more than 90% of the start point ?

Are they assuming the shares are going to tank but then bounce over the next 5 years but not 12 months?

There is far more to the plan, and not something that is easily explained on here, especially if you don't know how a Structured Product works.

In a basic SP you "bet" on an Index, like the FTSE100. So assume the plan is for 5 years, but has an early redemption feature (called a kick-out) every year on the anniversary of the plan. So it starts on Dec 1st 2025 with the Index being at 10000 points. The plan will pay out 7%pa as long as the Index is not more than 10% below its starting level. So, after 1 year (Dec 2026) if the Index is above 9000 it "kicks out" and you get your initial investment plus 7% return. If the Index is below 9000 points then the plan continues until the next anniversary (Dec 1st 2027) and if above 9000 points it "kicks out" and you get your initial capital plus 14%.

However..   if the plan never "kicks out" and runs the full 5 years then here's the kicker. If, on the 5th anniversary, the plan is still below 9000 pints then you just get your initial capital back with no other return. Worse still, if the Index has fallen sharply (usually 40%) you will lose money, on a £1 per % reduction. So if the FTSE100 has tanked and is at 5000 points on the 5th anniversary you will lose 50% of your capital.

Most Structured Products that have a "kick out" feature are usually 6 year plans with the kick our starting after 2 or 3 years.....so you get time to build up a decent return. Ones like the aforementioned are called "Defensive" and will usually have a lower %return than ones that are based on the Index or shares you are tracking to just be level on the "kick out" or maturity date. 

So, coming back to your point. The plan managers will have put a side bet on something happening to those shares as you say. The big risk I suppose is that if the tech bubble bursts and one of the 3 shares collapse & dont revive over the 5 years then you could lose 40% or more of your initial investment.....and also lose out of any interest or growth on that money over the 5 years as well. 

A 1 year kick out is unusual, especially as it's also semi-annually, so the plan kicks out after 12 months, or 18, or 24, or 30, or 36.....etc.

My bet is that many people will subscribe to it but the plan will kick out after 12 months. And then you have to do something again with the proceeds. Which are taxed under CGT (unless held in an ISA). 

valleynick66 said:

Thanks for explaining- interesting product   

So it’s not literally paying per annum in all circumstances only a post term calculation equivalent to a per annum figure?

Also is it literally the value on a set day rather than say the average price over a week on/around the anniversary date ? That doesn’t give much headroom for a rogue trading day / Trump style rant !

Yes, it is rather simple. A Structured Product will pay a set return per annum based on when the plan started, its initial entry level, and the anniversary dates. Some plans are a straightforward term with no kick-outs and so a plan paying 7%pa over 6 years will pay 42% upon maturity. Anniversary, kick out & maturity dates are set at the outset & are detailed in a brochure, so you know where you are from day 1. It's a bit like a fixed term deposit account in the fact you know what you are getting and when. You can always redeem the plan at anytime but if the underlying holdings have fallen in value you'll probably not get back what you have invested. 

Golfie, am I right in thinking that to achieve this a lot of SP's are backed by some sort of swap? 
I remember doing something about 18 years which sounds similarish. What I didn't appreciate, probably because I was working and very busy at the time, was that it was backed by a swap taken out with Lehman Bros. On their demise the thing went up in smoke. Luckily my investment wasn't large.

Real lesson though was twofold for me. Don't invest in things you don't fully understand and always look at the detail.