got my annuity quote today

steviegee50

hi, i turn 50 in june and have just got my annuity quote from pearl . since its protected rights i can only take a joint policy under inland revenue rules . fund value is £11,332 i can take £2,833 now and buy an annuity which works out at £371 per annum . i have the open market option so where would i get a better rate . thanks

dunstonh

i have the open market option so where would i get a better rate

An IFA has access to all companies on the OMO. However, your small fund value means that many companies will not quote to you as the its below their minimum. Is the annuity quote you have from Pearl or Pru? (pru handle all the personal pension annuities but Pearl keep the guaranteed annuity rates and section 32 buy out bond annuities).

EdInvestor

Since you are so young, have you considered just taking the tax free cash and leaving the rest invested so it can grow and hopefully provide a bigger income later when you actually retire?You would need to move the money to an income drawdown' plan, typically offered in a SIPP to do this.You can draw an income from the fund, up to 120% of the annuity rate, or you leave the money invested.At 50, annuity rates are very low,so it's not a good way to go.

steviegee50

thanks . Dunstonh its with pearl .spoke to an IFA 2 weeks ago he said i dont need to take out 25% its anything upto 25% he also said i will have more companys to choose from if i had £10000 to buy an annuity so considering that idea. Edinvestor dont know much about income drawdown plan,was going to invest my annuity in a long term fixed savings account but IFA said maybe AVCs or invest in stocks and shares . The initial meeting with the IFA was free but if i make an appointment to get him to deal with my annuity he said it will usually cost £500 but since the annuity is so small he said he will charge me £250.

jamesd

Do you need the money now?

steviegee50

jamesd , not desperate for the money but i live from week to week so this 25% carrot that they are waving at me seems very tempting . then i was going to invest the annuity for the 15 yrs till i retire . when i retire i will withdraw the money i invested monthly plus my annuity so in 15 years time these 2 added together will more than double the amount of annuity i will get in june if that makes sense

EdInvestor

steviegee50 wrote: »

. then i was going to invest the annuity for the 15 yrs till i retire .

What are you going to invest the money in? Let's say you want to play it safe and choose cash. Over 15 years you pay your 31 pounds a month annuity payment into an account which nets you an average return of 3% after tax.At the end your return is 7,031 pounds.

Now what happens if you move the lump sum into drawdown?After taking 25% in cash this lump sum will total 8,499 pounds. Invested in a SIPP with no annual fee and using its tax free cash fund which also returns an annual 3%, after 15 years you will have a total return of 13,241.

It's really easy to see why people are always led in the direction of annuities.They are such a wonderful deal for the insurance industry and its salesmen.And such a woeful option for the rest of us, especially anyone under the age of around 75, where annuities start to get a bit more reasonable.

In addition, if you die during the 15 years, the annuity money will stop and there will be nothing to leave your family.Whereas the drawdwon fund (minus 35% tax) will be handed over to your nominated beneficiary in cash outside your estate.

There is really no contest on this one. And that's before we even consider what the returns might be if some of the fund is invesated over the period in more productive assets.

PS.Don't bother to use an IFA for your drawdown, it's very easy to set up yourself, why pay him up to 5% of your fund value?

steviegee50

edinvestor . was going to invest in a long term fixed savings account or isa but the IFA i spoke to said have i ever thought about investing in stocks and shares or even putting it back into an AVC with my current work pension. Now that ive got my quote from pearl if i go back and see him it will cost roughly £250 , if i decide to invest in stocks i will deffinatly go back and see him cos i know nothing about them and that might be money well spent .If i was going it alone i was going to shop around for the best annuity then invest it a long term fixed account or ISA .

steviegee50

does drawdown = sipp ? That sounds a really good idea edinvestor it nearly doubles in value. Will shop around for best annuity rate .Sounds a stupid question but where will i get a sipp from ?

EdInvestor

steviegee50 wrote: »

does drawdown = sipp ? That sounds a really good idea edinvestor it nearly doubles in value. Will shop around for best annuity rate .Sounds a stupid question but where will i get a sipp from ?

Drawdown is not the same as a SIPP (self invested personal pension) But most SIPPs offer it, whereas most personal pensions don't -they are geared more to the annuity market. In general you also can't put your money in straight cash in a PP, whereas you can in a SIPP ( not that you will get anything much anywhere in the way of interest at the moment of course!)

Suitable low cost no annual fee SIPP providers are
https://www.sippdeal.co.uk
https://www.h-l.co.uk

jamesd

steviegee50 wrote: »

it nearly doubles in value.

It won't double in value. EdInvestor misled you by not including the effect of inflation. That 3% cash growth rate would mean that it might manage to keep up with inflation and be worth the same amount as it is today in spending power, after inflation.

You'll really need to use investments to get ahead of inflation. The IFA you were speaking with was right to suggest that approach.