Advice on annuity type

bendix

I dont really understand the need to get an annuity right now. The OP is only 56 and surely one of the biggest 'drags' on annuity income right now is his relatively young age. Why not wait a few years?

You mention you also have 250k in cash? There are plenty of failsave options to get 4-5% on that which will provide the same level of income as an annuity, without losing the capital. Use that and your wife's pension for general income, don't touch the pension pots and keep your cash capital balance, and look again at an annuity when you're 65. Seems much more logical to me.

EdInvestor

I agree with Bendix - you can structure your existing capital to replicate an annuity via the gilts market if you need the security right now, and leave the actual purchase until later when you will get a much better rate.

If you must go for a WP annuity then I agree with DH that the Pru is a better choice than L&G, but I strongly suggest you avoid this route.

DavidLaGuardia

An option not mentioned is the idea of using a thrid way product that combines a temporary annuity for the next five years with the residual capital invested in funds. There is even the option of the residual captial producing a fixed amount at the end.

This combines security of income and a return of most of the original capital on death.

MikeJones_2

Hi eirlby,

Excellent thread and all good comments above.

In addition to David's suggestion of another option, I note that there was no mention of your health (or your wife's health for that matter).

Health plays such an important factor in your retirement choices, not least because of its impact on your life expectancy.

Has the IFA discussed your health with you in terms of the annuity options, including any previous medical conditions that you may have suffered (including lifestyle factors such as smoking)?

I mention this because there are impaired life / enhanced annuities for numerous conditions and lifestyle choices that might improve your annuity.

Your family's medical history is also important too as certain medical conditions have a tendancy to be hereditary (diabeties, for example).

So, if these issued haven't already been discussed, raise it now.

Finally, don't get stressed. Walk away from the situation for a day or two (unless timing is critical) and come back with a clearer head.

As dunstonh has already said the IFA is there to help you and should be more than willing to allow you as much time as you like and answer any questions you may have. And if you feel cornered, flustered or confused, say so.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

jamesd

eirlby, please ask your IFA to discuss phased retirement with you.

It uses a portion of your pension pot each year to take the 25% tax free lump sum for income plus buys an annuity with the remaining 75%. It's tax-efficient because the lump sum provides a lot of the income in the early years. It has the other advantages of leaving much of the money invested to see a stock market recovery and getting higher annuity payout rates that come with increasing age at the time you buy the annuity. Two cases I'll consider here.

Case A: Using a 270,000 pension pot with the 25% tax free lump sum used as part of income I calculate that for every year from now through age 64 inclusive you could take 15,520 net income, equivalent to 17,900 gross and have an ongoing annuity payment of 12,000 from that with profits annuity for age 65 onwards. This is without taking the works pension, so you can wait and get the higher income from taking it at normal retirement age.

Case B: If you wanted to match the annuity and works pension and state pension you'll get at 65 from day one you could try to get an income of 9,575 annuity plus 5,000 to cover not taking the works pension early plus say 6,000 in state pension, a total of 20,575 in taxable income, 17660 net. To achieve that you'd need a pension pot or pension plus savings use of £309,000. With 270k plus 100k in pensions that seems doable.

Case C, without details given, uses 370k and gets you £24,900 a year of taxable income, £21,120 after tax, with an ongoing annuity payment of £16,384 a year for age 65 and on. Add 5k (ignoring what it grows to) works pension and 6k state pension and that's at least £27,384 a year in taxable income for life.

These can all be adjusted to give a higher income in the early years to help with the university costs or to put money into ISAs and generate later tax free income that way.

I just ignored the substantial (at least 6%) income you can expect from the money you already have in savings including ISAs.

You don't need to buy any special product to do this, it's just gradually moving money from the existing pension pot to buy an annuity each year.

Detailed calculations for the cases, for number geeks (and maybe your IFA) only.
Case A: assumes 7% investment growth, annuity rate 4.7875%, ignoring inflation, after tax income 15000 or a bit higher every year. Personal tax allowance of 6k, not increasing, tax rate 20%.
Year 1: take benefits of £54,000. 25% tax free cash income £13550, buy annuity £1946. Income 13550 + 1946 = £15,496.
Year 2: take £47400. 25% £11850, buy annuity £1702, total annuity 3648.
Year 3: take £41600. 25% £10400, buy annuity £1494, total annuity 5142.
Year 4: take £41000. 25% £10250, buy annuity £1472, total annuity 6614.
Year 5: take £36600. 25% £9150, buy annuity £1314, total annuity 7928.
Year 6: take £32800. 25% £8200, buy annuity £1178, total annuity 9106.
Year 7: take £29400. 25% £7350, buy annuity £1056, total annuity 10161.
Year 8: take £26400. 25% £6600, buy annuity £948, total annuity 11109.
Year 9: take £23800. 25% £5950, buy annuity £855, total annuity 11964.
That's your age 64 year, last year before state retirement. For age 65 and on you'd have about 1k left in the pension pot, ongoing annuity of 11,964 with profits plus the works pension (call it 5k but it'll be higher after the wait) plus say 6k of state pension. That's £22,964 taxable.

Case B: same assumptions as case A, except after tax income of 17660 each year and starting pension pot of 309k.
Year 1: starting pension pot of 309k. Take £61800. 25% 15450, buy annuity 2219, total annuity 2219. Income 15450 + 2219 = £17,669.
Year 2: take £54000. 25% 13500, buy annuity 1939, total annuity 4158.
Year 3: take £47300. 25% 11825, buy annuity 1698, total annuity 5856.
Year 4: take £46500. 25% 11625, buy annuity 1670, total annuity 7526.
Year 5: take £41700. 25% 10425, buy annuity 1497, total annuity 9023.
Year 6: take £37500. 25% 9375, buy annuity 1346, total annuity 10370.
Year 7: take £33500. 25% 8375, buy annuity 1203, total annuity 11573.
Year 8: take £30100. 25% 7525, buy annuity 1081, total annuity 12653.
Year 9: take £27100. 25% 6755, buy annuity 973, total annuity 13626.
That's the age 64 year. About 4k left in the pension pot after it and you have an ongoing annuity payment of £12,626 plus 5k works (plus whatever it grows to) plus say 6k of state pension, a total of at least £23,626 taxable income.