Advice on annuity type

eirlby

I am 56 years old and am looking to take early retirement. I have a private pension fund of £270K and another 3 making up £100k. I also have a final salary works pension which will give me around £5k per annum if taken early.
In cash which includes bonds and ISA's I have around £250k. My wife will also retire early next year and will draw a pension of £12k. We have no outgoings only putting a son through Uni

What I am cautious about is what route to take for an annuity. It has been suggested that I look at L&G's with profits annuity. I dont like risks and was wondering whats the thoughts of this forum are. Plain annuity against with profits or is there something else I should consider.

Thanks

dunstonh

What I am cautious about is what route to take for an annuity.

See an IFA. Its a no brainer. Its really a no cost option at this stage as DIY would mean the providers would keep the commission they pay the IFA for themselves. No point seeing tied agents as they only offer their product and most cant do it anyway. Its probably worth doing it with an IFA on agreed fee basis with commission set to offset the fee (rather than pay by cheque),

It has been suggested that I look at L&G's with profits annuity.

I wouldnt personally go near that. The only WP annuity I would personally consider is Pru. Even then I would set it with a low ABR and I would really still prefer not to. What Annual bonus rate was being recommended for L&G?

I dont like risks and was wondering whats the thoughts of this forum are.

Everything has risks. There is no risk free option. Its just a range of different risks.

Plain annuity against with profits or is there something else I should consider.

You have value protected annuities, unit linked/with profit annuities, income drawdown etc. Although if investment risk is more of a concern to you than inflation risk or income risk then straight annuities may be better.

bendix

And, of course, there's no need to tie up all your pension money at this point with annuities, particularly given how young you are. You obviously have a significant chunk of cash generating income, and yuo've mentioned 17,000 in joint pensions for you and your wife. Given that the annuity rates for a 56 year old are considerably lower than for a 65 year old, I'd be inclined to explore using your cash reserves to generate income to supplement the 17000 in pensions for the next 9 years and then assessing the situation then. That £250,000 invested conservatively should be able to generate an extra £10,000 a year without touching the principle too much.

Congrats though. You're pretty much in the same situation I hope to be in a few years time myself.

eirlby

dunstonh wrote: »

See an IFA. Its a no brainer. Its really a no cost option at this stage as DIY would mean the providers would keep the commission they pay the IFA for themselves. No point seeing tied agents as they only offer their product and most cant do it anyway. Its probably worth doing it with an IFA on agreed fee basis with commission set to offset the fee (rather than pay by cheque),



I wouldnt personally go near that. The only WP annuity I would personally consider is Pru. Even then I would set it with a low ABR and I would really still prefer not to. What Annual bonus rate was being recommended for L&G?



Everything has risks. There is no risk free option. Its just a range of different risks.


You have value protected annuities, unit linked/with profit annuities, income drawdown etc. Although if investment risk is more of a concern to you than inflation risk or income risk then straight annuities may be better.

L&G with an ABR of 3% will pay £10k per annum they currently offer a annual bonus of 3% and temporary bonus of 2.5
The £10K per annum is about £800 pounds better than the Pru. I have a IFA and he is pushing the L&G. Why are you not ok with them ?
Was led to believe now was a good time to take out the annuity because the footsie is low

dunstonh

The £10K per annum is about £800 pounds better than the Pru. I have a IFA and he is pushing the L&G. Why are you not ok with them ?

It may be £800 better than Pru but the Pru WP fund is far better. I wouldnt put any money in the L&G WP fund. Its not a bad option but I dont personally rate it and my opinion is that the potential is better with Pru.

Remember that investments are about opinion. So, whenever you look at investment options, you will get different opinions. Only time will tell which option is best and sometimes you get it right and sometimes you get it wrong.

Was led to believe now was a good time to take out the annuity because the footsie is low

That is correct. The potential is certainly better than it was.

If you understand the risks and the potential pros and cons of annuity, WP annuity and income drawdown, then most people would either go for annuity or income drawdown. Or you can hedge your bets and do a bit of both.

I would suggest you speak to the IFA with your concerns and ask a lot of questions and make sure you really understand all the risks. That means income risk, inflation risk, shortfall risk and investment risk. Dont just focus on investment risk. This is a once in a lifetime decision with most options unable to go back on once they are put in place. You have to get it right first time. So, don't rush it and don't be afraid to ask lots of questions. The IFA needs to know what you need and what your thoughts are to be able to give you best advice. If you have concerns then the concern could be enough for you not to be in the best option financially but in the best option from a peace of mind point of view.

Also, with your fund, make sure you are doing it on fee basis. It will be far cheaper than commission basis. (if you dont want to write the cheque for the fee, the IFA can equalise the commission to match the fee - that will enhance your terms).

eirlby

dunstonh wrote: »

It may be £800 better than Pru but the Pru WP fund is far better. I wouldnt put any money in the L&G WP fund. Its not a bad option but I dont personally rate it and my opinion is that the potential is better with Pru.

Remember that investments are about opinion. So, whenever you look at investment options, you will get different opinions. Only time will tell which option is best and sometimes you get it right and sometimes you get it wrong.

That is correct. The potential is certainly better than it was.

If you understand the risks and the potential pros and cons of annuity, WP annuity and income drawdown, then most people would either go for annuity or income drawdown. Or you can hedge your bets and do a bit of both.

I would suggest you speak to the IFA with your concerns and ask a lot of questions and make sure you really understand all the risks. That means income risk, inflation risk, shortfall risk and investment risk. Dont just focus on investment risk. This is a once in a lifetime decision with most options unable to go back on once they are put in place. You have to get it right first time. So, don't rush it and don't be afraid to ask lots of questions. The IFA needs to know what you need and what your thoughts are to be able to give you best advice. If you have concerns then the concern could be enough for you not to be in the best option financially but in the best option from a peace of mind point of view.

Also, with your fund, make sure you are doing it on fee basis. It will be far cheaper than commission basis. (if you dont want to write the cheque for the fee, the IFA can equalise the commission to match the fee - that will enhance your terms).

Thanks for the reply
Will look at the Pru again. The quotation from L&G says that they will pay the IFA £3023. Do you mean I can challenge this fee

dunstonh

The quotation from L&G says that they will pay the IFA £3023. Do you mean I can challenge this fee

That is not a fee. That is a commission. IFAs have to work on either fee basis or commission. You as the client gets to choose which. That said, the commission there appears to be discounted somewhat from the normal retail. So, its possible that your IFA is working to a structured fee basis but using the commission system to offset that fee. How you pay for advice is something that should be discussed at the beginning of any meeting.

EdInvestor

I don't understand why anyone would buy a With profits annuity.You give up your capital but still take the risk of a falling income.

Why would you do that when you could either take a conventional annuity where you give up the capital but the income is 100% guaranteed, or income drawdown, wher you take a risk on the income but keep the capital?



You only have to look at what happened at Equitable Life to see the dangers of WP annuities.AVOID.

dunstonh

I don't understand why anyone would buy a With profits annuity.You give up your capital but still take the risk of a falling income.

Along with the potential of a rising income that can exceed RPI indexation.

You only have to look at what happened at Equitable Life to see the dangers of WP annuities.AVOID.

Can you explain the comparisons between Pru and Eq Life and what issues Pru WP annuity holders may have?

eirlby

I had another meeting with my IFA the options on with profits annuity are :-
L&G with a pension pot of £200K including £34k of protected rights would pay out approx £9575
Pru would pay out £8785.
L&G are offering about 1% more on bonus payments. Your initial comments against L&G have alarmed me slightly.
The extra £800 per year does sound good.
The Pru are now introducing a new annuity called Income Choice. Any views on this. It is now getting a bit stressfull. Should I just say sod it and go for a straight annuity. This would pay me just under £11k per year

dunstonh

If you gave me the choice of L&G or Pru as the only options available, I would go Pru, even with that difference. At the end of the day, Pru has the best with profits fund on the market and I would feel more comfortable with it than I would with L&G.

Whilst past performance is no indication of future returns, get your IFA to supply back data on bonuses paid by Pru and L&G on the WP annuity. I would expect Pru to come in better than L&G. Happy to be proven wrong but you need hard data to be available when making a decision like this.

It is now getting a bit stressfull. Should I just say sod it and go for a straight annuity. This would pay me just under £11k per year

Investments carry risk. Going for an investment backed annuity will carry more stress than a plain lifetime annuity. However, get the hard data allowing you to see past bonus rates (only useful to compare the two providers over the same period) and see what the differences are. I would hate for you to go with the one with the higher initial amount only to find the increases are much lower than the the one with the lower initial amount.