Yield and rising dividends are key for pensioners as an alternatives to annuities


April 2015 will mark a seismic change to UK pensions when the obligation to buy an annuity will be removed. Although tax treatment needs to be conside
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The substabtial error in the first sentence does call into question the credibility of the rest of the article: income drawdown for under-75s was introduced in 1995, and the need to purchase an annuity before the age of 75 was abolished in 2011.

In effect, the changes due in April will allow pension pots to be completely de-funded.



Isn’t it just a little bit worrying that these changes are coming when stock markets are looking deer with company profits at record highs, huge one off dividends and company buy backs pushing up share prices.

Let’s hope all those pensioners don’t whack all their life savings in to the stock market at once.


Isn’t it better to just buy an income fund like Invesco Perpetual High income, or Henderson Far East Income, or probably both of those and a couple more rather than messing around with a smart beta fund.

I read something in the Express or the Mail about these so called ‘Smart’ funds still being pretty unsmart and buying every dividend payer going bust.

They probably can be done well but they’re just another level of complication you could do better without IMHO.


I don’t own any smart beta funds. They’re basically trackers but if trackers appeal to you, and they do to me, then in theory they are of interest too because they target dividend payers which some of us find more attractive.

What would worry me a little bit @harjunder is how much weighing they put towards high dividend payers because they can be high dividend payers because of a likelihood of going bust or having an unfundable dividend.

It could become a bit of a trap.


It is important to make the distinction between high yields and high dividend payers.

Shell and HSBC pay high dividends and have reasonable yields. However, these yields are not as high as some shares where there is a real question mark over their ability to maintain these dividends.

That is why it is important to differentiate between smart beta funds that weight by yield and those that weight by dividends.


@robert-davies, How do you define a high dividend payer that would allow it to be differentiated from a high yielder?


A high yielder would conventionally be regarded as one with a higher yield than the market average.

There is no such convention with high dividends, but I guess any of the top 30 dividend payers could be regarded as large dividend payer.

They may or may not overlap.


Do these smart beta funds actually own shares or do they buy derivatives? I’m just trying to understand how they pay out the dividends and where they come from.

And I don’t get what the difference is between a high dividend and a high yield. Surely it is the same? That question is to @robert-davies in particular.



I can’t speak for all such funds but the one I am familair with does not use derivatives, it simply buys shares. These shares distribute dividends to the fund and these in turn are either reinvested in the fund or paid out to investors depending on whether they have accumulation or income units.

A high dividend payer is a companu such as HSBC which pays out nearly £7 billion in dividends and yields 5.4%.

On the other hand a company like Electrocomponents yields 6% but only pays out £50m in dividends.