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"Investment protection" annuities

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  • 27-05-2015 3:55pm
    #1
    hmmm
    Registered Users Posts: 11,205 ✭✭✭✭


    Would anyone have any opinions on these? I can't quite figure out the structure.

    They seem to be ARFs (I think), but with an annuity-type payout, with the balance going to the estate. That's about as far as I got and could be wrong.

    I'm always wary of anything innovative in this space.


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    #2
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    Interest rates are at rock bottom these days, I wouldn't touch any product with annuity in the title.

    And as you correctly point out, you need to be very wary of any 'innovative' products in that space. If you buy a product that is unique to that provider, it will be impossible to work out if it's a good deal or not since you will have nothing to compare it to.

    My advice would be to put the money in a cautiously managed (risk level 3) ARF and draw what you need as you need it. The ARF doesn't have to be with the same company as you've been investing in, you can put it into any approved fund which basically means any life insurance company operating in Ireland.


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    #3
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    What about the issue of imputed distribution?


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    #4
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    If you think it might become an 'issue' then please say why.

    OP, for what it's worth, the revenue commissioners assume that you draw down 4% of the value of an ARF annually if the holder is aged 60 or more for the entire calendar year, this is known as an 'imputed distribution' - 'distribution' is the term they use for any event which triggers a tax liability. This means that you effectively must draw down a minimum of 4% of an ARF each year as you're going to pay the tax (and USC) whether you take the money or not. Unless your birthday is Jan 1st, it applies from the calendar year when you reach the age of 61.


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    #5
    hmmm
    Registered Users Posts: 11,205 ✭✭✭✭hmmm


    coylemj wrote: »
    If you think it might become an 'issue' then please say why.
    Thanks, yes, I was aware of that - I'm not sure however what the structure behind these products is, and the brochures certainly suggest that imputed distribution is not an issue that affects them.


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    #6
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    coylemj wrote: »
    If you think it might become an 'issue' then please say why.

    OP, for what it's worth, the revenue commissioners assume that you draw down 4% of the value of an ARF annually if the holder is aged 60 or more for the entire calendar year, this is known as an 'imputed distribution' - 'distribution' is the term they use for any event which triggers a tax liability. This means that you effectively must draw down a minimum of 4% of an ARF each year as you're going to pay the tax (and USC) whether you take the money or not. Unless your birthday is Jan 1st, it applies from the calendar year when you reach the age of 61.

    Direct from Google presumably. You haven't a rashers.

    Making 4% year on year with a backdrop of 0.5% return on cash won't be easy without considerable risk. I'm surprised you didn't mention it.


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    #7
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    hmmm wrote: »
    Thanks, yes, I was aware of that - I'm not sure however what the structure behind these products is, and the brochures certainly suggest that imputed distribution is not an issue that affects them.

    It doesn't affect the policy per se - it affects the policyholder. Get proper advise on this OP. Don't rely on well meaning but limited knowledge from people here.


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    #8
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    Henry Ford III wrote: »
    Direct from Google presumably. You haven't a rashers.

    Were you going to contradict anything I said, or are you just going to throw stones and contribute nothing constructive?
    Henry Ford III wrote: »
    Making 4% year on year with a backdrop of 0.5% return on cash won't be easy without considerable risk. I'm surprised you didn't mention it.

    Mention exactly what? He's not 'making' 4% year on year, that's the imputed annual distribution - or do you understand the concept? And even a very cautious (risk level 2) ARF fund can make more than 2% p.a.


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    #9
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    coylemj wrote: »
    Were you going to contradict anything I said, or are you just going to throw stones and contribute nothing constructive?

    You've posted some absolute dingers on this thread already including:

    1/. "I wouldn't touch any product with annuity in the title."

    There's nothing wrong with annuities. Can you think of any circumstances where it'd be sound advice to buy one, or where it would be compulsory to do so?

    2/. "My advice would be to put the money in a cautiously managed (risk level 3) ARF and draw what you need as you need it."

    Only Mystic Meg could give advice on so little information. Interesting that you didn't mention the AMRF requirement either.

    3/. "OP, for what it's worth, the revenue commissioners assume that you draw down 4% of the value of an ARF annually if the holder is aged 60 or more for the entire calendar year, this is known as an 'imputed distribution'."

    You can place funds in ARF's from aged 50 onwards (early retirement under an employer pension scheme). Imputed distribution is an immediate issue.

    Your advice is both incomplete and dangerously innacurate. Imagine if somebody made a decision based on it?


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    #10
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    coylemj wrote: »
    //Mention exactly what? He's not 'making' 4% year on year, that's the imputed annual distribution - or do you understand the concept? And even a very cautious (risk level 2) ARF fund can make more than 2% p.a.

    I understand the concept fully. The ARF holder needs to make 4% year on year to avoid the value of the policy reducing.


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    #11
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    Once again you're contributing nothing positive to the thread.
    Henry Ford III wrote: »
    You've posted some absolute dingers on this thread already including:

    1/. "I wouldn't touch any product with annuity in the title."

    There's nothing wrong with annuities Can you think of any circumstances where it'd be sound advice to buy one, or where it would be compulsory to do so?

    'Nothing wrong with annuities' :eek:. If you truly believe that then you are the one peddling dangerous advice.

    Quantitative Easing has resulted in historically low interest rates so annuities are currently the absolute worst value financial products to buy.

    The reason the UK authorities have recently removed the requirement to buy an annuity is because they are currently crap value and represent a black hole which swallows up a person's retirement fund for a seriously poor return.


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    #12
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    I've highlighted 3 pretty glaring errors in your posts!

    Any hope you'd answer my question?

    "There's nothing wrong with annuities. Can you think of any circumstances where it'd be sound advice to buy one, or where it would be compulsory to do so?"

    Anyone with a basic knowledge of pensions and annuities should be able to answer that.

    p.s. I didn't advise purchasing an annuity. I just said there was nothing wrong with them.


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    #13
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    Henry Ford III wrote: »
    I've highlighted 3 pretty glaring errors in your posts!

    You say they're errors, care to contribute something constructive - like give the OP some advice for a change? Or are you here just to pick holes in other people contributions?


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    #14
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    They're glaring errors and demonstrate a fundamental lack of knowledge on your part. I note you haven't attempted to counter argue any of them.

    Pointing out the shortcomings of your advice is constructive.

    I note you haven't anwered the question I've asked twice here. You don't know the answers I reckon.

    I'll leave it at that I think.


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    #15
    PaulM1977
    Banned (with Prison Access) Posts: 210 ✭✭PaulM1977


    Only issue I would contribute is that imputed distribution is 5% and has been since last years budget.


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    #16
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,639 Mod ✭✭✭✭Henry Ford III


    PaulM1977 wrote: »
    Only issue I would contribute is that imputed distribution is 5% and has been since last years budget.

    It varies between nil and 6%

    https://www.brokerzone.ie/pdfs/UFACTSPen.pdf


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    #17
    PaulM1977
    Banned (with Prison Access) Posts: 210 ✭✭PaulM1977


    Henry Ford III wrote: »
    It varies between nil and 6%

    I stand corrected.


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    #18
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    PaulM1977 wrote: »
    Only issue I would contribute is that imputed distribution is 5% and has been since last years budget.

    It was 5% for several years before last year's budget. In the Finance Bill published after the budget the rate was reduced to 4% for people under 71 even though it was never mentioned in the Minister's budget speech. I spotted it in the Finance Bill as did Deloitte ....

    Individuals who are less than 71 years of age will now only be subject to an imputed distribution of 4% (as opposed to 5%) of their fund value, where the value of the fund is less than €2 million. Again these changes will come into effect from 1 January 2015.

    http://www2.deloitte.com/ie/en/pages/finance-bill/articles/finance-bill-2015-pensions.html

    Standard Life says the reduction made it into the Finance Act, see p.2 .....

    https://www.brokerzone.ie/pdfs/UFACTSPen.pdf


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    #19
    The J Stands for Jay
    Registered Users Posts: 5,669 ✭✭✭The J Stands for Jay


    Henry Ford III wrote: »
    You've posted some absolute dingers on this thread already including:
    3/. "OP, for what it's worth, the revenue commissioners assume that you draw down 4% of the value of an ARF annually if the holder is aged 60 or more for the entire calendar year, this is known as an 'imputed distribution'."

    You can place funds in ARF's from aged 50 onwards (early retirement under an employer pension scheme). Imputed distribution is an immediate issue.

    Your advice is both incomplete and dangerously innacurate. Imagine if somebody made a decision based on it?

    What's wrong with this one?


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    #20
    NewCorkLad
    Registered Users Posts: 957 ✭✭✭NewCorkLad


    hmmm wrote: »
    Would anyone have any opinions on these? I can't quite figure out the structure.

    They seem to be ARFs (I think), but with an annuity-type payout, with the balance going to the estate. That's about as far as I got and could be wrong.

    I'm always wary of anything innovative in this space.


    The Investment Protection Annuities are annuities which pay you out a guaranteed income until you die, the extra benefit of these policies is if you die before the original investment is paid out the difference is paid into your estate. These were being offered by Irish Life, but I was under the impression that they had been taken off the market. You would need to seek proper financial advise before making any decision, as at the moment annuities only suit people with a very low appetite for risk, due to the low rates being paid and the investment protection annuities pay a lower income again.


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    #21
    NewCorkLad
    Registered Users Posts: 957 ✭✭✭NewCorkLad


    Henry Ford III wrote: »

    3/. "OP, for what it's worth, the revenue commissioners assume that you draw down 4% of the value of an ARF annually if the holder is aged 60 or more for the entire calendar year, this is known as an 'imputed distribution'."

    You can place funds in ARF's from aged 50 onwards (early retirement under an employer pension scheme). Imputed distribution is an immediate issue.

    For what its worth imputed distributions do not apply until age 60 even when ARF's are set up earlier due to early retirement.


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