Guaranteed drawdown pension

Hi Mr. Tan,

What are your views about this type of pension? If a UK insurance company can offer something like this, surely the Singapore government can offer something like this on annuities for post 62ers? Or least something better than what we will get.
http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/business/7595951.stm

REPLY

I promoted the concept of pension drawdown with an investment fund (i.e. equity, bond or mixed fund). The idea is that you invest your savings in the investment fund, earn a market yield (which can fluctuate wildly) and draw down each month what you need. Any balance in the fund on death of the investor is paid to the estate.

You can calculate the monthly drawdown to last until you are (say) 120 years old. As most people will not live to that age, there will always be some balance that is available.

If you are investing for many years, you reduce the risk of the investment fund as you will get some good years and some bad years, which will give an average yield over the period.

The UK product works in a similar way. It has an added feature to provide the guarantee. I usually advice people to avoid buying this type of guarantee, for the following reasons:

> it is costly
> it is not transparent
> the financial institution backing the guarantee can go bust (like what is happening to the credit default swaps,etc)

Take risk. Risk is to your advantage. Stay with the transparent products. Avoid structured products (like this type of guarantees),-