Annuity problems: Readers given some advice
What can you do if you are worried that falling investment values and low annuity rates have undermined the pension you were once hoping to obtain from your pension savings?
Earlier this month we published a feature highlighting the problems some readers have faced.
Several independent financial advisers emailed us, suggesting the readers could have benefited from some good advice before retiring.
The main theme of the comments was that three of our four readers could have taken some decisions several years before deciding to retire - specifically to protect themselves against sudden falls in the value of their investment funds.
For instance, retired accountant John Richardson, who retired a few years ago but left some pension investments untouched, complained that his pension pot had shrunk during this summer's stock market turmoil.
He also felt he had not had much ability to control his investments anyway.
Justin Crocker, of IIB Financial Services in Ashby de la Zouch, highlighted a fundamental point made by all our correspondents.
"The prospect of leaving funds invested in equity/managed funds right up to retirement is high risk and something no adviser would really recommend for money required in less than five years," Justin said.
"A switch to safety as one approaches retirement (often called Lifestyling) is a must."
Gary Lee, of Mulberry Financial, points out that delaying taking a pension, as John Richardson did, can easily be the wrong decision.
"If you have retired, and have a pension that you have delayed, then there are lots of reasons why you might be best advised to draw it now rather than later," Gary said.
"Annuity rates are on a long term downward trend due to increased longevity [and] delaying your retirement, waiting for annuity rates to improve, has generally been a bad move for the last 10 to 15 years.
"All the while you delay, you are missing out on income that you could have had," Gary added.
Protect your fund
Tony Samuel, from Scotland, had taken the plunge and bought a pension with his funds.
But he still felt upset at the negligible level of investment growth he had experienced in the past few years.
Peter Wood, of Lighthouse Financial in Kingston-upon-Thames, says Tony should have planned ahead as well.
"He should have been reducing risk as he got to retirement age by shifting away from equity-based funds to less risky funds eg fixed interest and cash in the three to four years prior to retirement," said Peter.
"This allows clients to protect the value of the pension funds they built up over many years."
Garry Sturley, of Bradshaw Bennett in Macclesfield, was blunt about the decisions of our anonymous reader from the south coast.
"Your case of a 65-year-old man invested in funds that track the FTSE is a shocking example of poor investment planning," said Garry.
"Had he taken advice on Lifestyling he would have greatly reduced the risk of investment losses as he approached retirement, and thus reduced the stress and disappointment that he now feels.
"The lesson: timely advice will reduce your stress and worry," Garry added.
The financial advisers were all very sympathetic towards John Brandwood as he would not have been able to foresee his current situation.
He was made redundant earlier this year and had felt compelled to crystallize his pension savings to draw an income early.
However Gary Lee commented on John's apparent reliance on much earlier financial projections, which were now out-of-date.
"Older pension projections were based on high estimated growth rates and high historical annuity rates," said Gary.
"If you get an up-to-date projection from your pension provider it will use lower growth rates and should give you a much more realistic idea of what you are likely to get back from your pension," he added.
Peter Wood explained that John was in a different position because he is only 56.
"Annuity rates have fallen significantly since the 1990s plus his illustrations would undoubtedly have been at age 65," said Peter.
"So he has not benefited from nine years' extra growth and also lower general annuity rates as well as taking benefits nine years early.
"This of course would lead to a much lower income," Peter points out.
Garry Sturley says in the past John might have been able to protect himself financially against redundancy.
"As he had not expected to retire at age 56 he would probably not have started the pension Lifestyling process, so there is little he could do to avoid his situation, even with good advice," said Garry.
"However, insuring himself against redundancy might have provided enough replacement income so he wouldn't need to use pensions so early in his life.
"Redundancy insurance is worth taking, if you can get a policy that will cover you - it can happen to any of us at any time," Garry pointed out.
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