Poor annuity rates
OldBlade
Posts: 25 Forumite
I have a money purchase pension sum of around £200K and the annuity rates I'm being offered give me peanuts.
Does anyone have any other suggestions for what I could do to get a better income from this amount?
Does anyone have any other suggestions for what I could do to get a better income from this amount?
0
Comments
-
How old are you?
What's the best annuity rate you've been offered?
How about income drawdown? Perhaps an amount equal to the state pension you'll get when that kicks in?0 -
I've been offered £7100, about 3.5%. I'm worried about income drawdown. It would have to be invested somewhere and the overal value of the fund could drop in these uncertain times.0
-
I've been offered £7100, about 3.5%. I'm worried about income drawdown. It would have to be invested somewhere and the overal value of the fund could drop in these uncertain times.
It's always been uncertain times.
You can't have your cake, etc ....
You could do half and half, take an annuity with half the sum, drawdown from the other which is invested, but you probably have 25-30 years ahead ( I'm guessing you are about 60?) , which is plenty of time for investments to recover should there be a fall. Presumably they are currently invested ? Or did they get "lifestyled" into cash?
Anyway, you choice is pretty clear take an annuity with a lousy rate,( shop around and you might do better than you've quoted but it won't be by much), or invest, or some proportion of the two.
Or I suppose just put it all in cash at about 1%, take out 8,000 a year and it will last maybe 30 years anyway and that's still more than you'd get with an annuity.0 -
I've been offered £7100, about 3.5%. I'm worried about income drawdown. It would have to be invested somewhere and the overal value of the fund could drop in these uncertain times.
If you think you have a low tolerance to risk, then take the annuity. At least you have a choice these days.
You've been exposed to investments this far though ...0 -
Just running those sums and putting it all in cash could be quite attractive.
But how to get it out of the pension scheme and into cash without being hit massively for tax?0 -
The only way to get an absolutely guaranteed life-long income in retirement is to use an annuity. However given the current low annuity rates you can get a better income that would have been sustainable until you die at any point in the last 100+ years, including 2 world wars and the Great Crash, by investing. You would need to construct a portfolio that included a very wide range of investments, some very volatile but high returning in the long term, others with a steady but lower return. If you dont have the knowledge to do this, for £200K you should be talking to a local IFA.
To get some idea of what return is reasonable have a look at https://www.cfiresim.com. It is based on US data but the general principles and results are good enough for the purpose.0 -
Just running those sums and putting it all in cash could be quite attractive.
But how to get it out of the pension scheme and into cash without being hit massively for tax?
Do you know how long you are going to live and what future inflation will be? If not, how do you decide how much to drawdown in the early years without a serious risk of running out of money before you die?
How old are you?
What other retirement income do you have?
Is the 3.5% inflation linked?0 -
No the 3.5 isn't index linked. A quote for index linking would give me about half that the amount.
I should come clean here, I'm asking on behalf of my wife who is 60. She has no other pensions other than her state pension which she won't get until she is 66.0 -
No the 3.5 isn't index linked. A quote for index linking would give me about half that the amount.
I should come clean here, I'm asking on behalf of my wife who is 60. She has no other pensions other than her state pension which she won't get until she is 66.
In those circumstances, an annuity is a pretty blunt instrument as well as poor value. It is likely that your wife’s income requirements from 60 to her state pension age will be higher than after she gets her state pension. Get a pension statement to find out how much state pension she will get and work out the shortfall. Look to see if paying additional NI contributions will increase her state pension. Look at using your private pension to bridge the gap between 60 and the state pension age and then to defer the state pension for a number of years, increasing the state pension that she will ultimately receive. Such a strategy is likely to offer much better value than taking an annuity now.0 -
No the 3.5 isn't index linked. A quote for index linking would give me about half that the amount.
I should come clean here, I'm asking on behalf of my wife who is 60. She has no other pensions other than her state pension which she won't get until she is 66.
Sorry, re-reading your post I'm a bit confused. She has no other pension than the state pension and the private pension you are referring to is yours? I think you need to do some joint planning, not just planning for your wife.0
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.3K Work, Benefits & Business
- 608K Mortgages, Homes & Bills
- 173.1K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards