Annuity Advice

shiredeon

I am now 50 and have opted back in to SERPS. I can buy an annuity with my fund of £51,328 but can I do this without paying charges as I need no advice and know what I want

Also, should I take the 25% tax free lump sum or buy an annuity with the whole fund?

Thanks in advance...

EdInvestor

shiredeon wrote:

I am now 50 and have opted back in to SERPS. I can buy an annuity with my fund of £51,328 but can I do this without paying charges as I need no advice and know what I want

To do this you need to go through a discount broker which will rebate the charges to you.https://www.hargreaveslansdown.co.uk is one such that does annuities.Don't buy direct, the life co will just pocket the charges itself.

Also, should I take the 25% tax free lump sum or buy an annuity with the whole fund?

If you don't take the tax free cash,you will have given up the tax perk on the whole pension.

Aged 50 is awfully young to buy an annuity unless perhaps you are disabled and can't work - you must be getting a truly miniscule rate? If you're not taking an index-linked annuity, don't forget that the value of the payment will halve in 20 years at current inflation levels.

Are you sure it's not better to allow the fund to grow a bit longer?

dunstonh

To do this you need to go through a discount broker which will rebate the charges to you.www.hargreaveslansdown.co.uk is one such that does annuities.Don't buy direct, the life co will just pocket the charges itself.

To do it on discount terms, dont you have to tell HL which annuity provider you wish to use? If you want them to tell you, they will do it on advice terms.

You should also check for penalties and guaranteed annuity rates which may kick in at later ages which you would be forfeiting by commencing early.

EdInvestor

To do it on discount terms, dont you have to tell HL which annuity provider you wish to use?

The OP said he knows what he wants.

It is a pity it is a PR fund,otherwise one would recommend that he look into drawdown at such a young age. But at present you can't put PR funds in Sipps for low-cost drawdown.

shiredeon

I've been told that I cannot pay anymore into the fund, nor transfer the money into another vehicle. My only options are to cash it in or leave it in the hope that the stock market will grow slightly.

The stock market of late does not appear to be buoyant and so my fund could even get smaller :eek:

dunstonh

shiredeon wrote:

I've been told that I cannot pay anymore into the fund, nor transfer the money into another vehicle. My only options are to cash it in or leave it in the hope that the stock market will grow slightly.

The stock market of late does not appear to be buoyant and so my fund could even get smaller :eek:

An average pension portfolio would be up around 10% a year over the last 5 years. Better ones would be closer to 20% a year. The stockmarket in the last few weeks has suffered a bit of profit taking but has settled a bit over the last few working days. You are 50 and it could be there for another 10-15 years if need be and 2 weeks of volatility are going to have no impact.

If you have concerns about the stockmarket you could alter the portfolio. If you have concerns about the fund range offered by your provider you can transfer it to another one.

Buying an annuity and taking your pension commencement lump sum because of 3 weeks of stockmarket volatility is not exactly sound financial planning and I recommend you review it.

The OP said he knows what he wants.

Do you still feel confident that he/she does Ed?

shiredeon

dunstonh wrote:

An average pension portfolio would be up around 10% a year over the last 5 years. Better ones would be closer to 20% a year. The stockmarket in the last few weeks has suffered a bit of profit taking but has settled a bit over the last few working days. You are 50 and it could be there for another 10-15 years if need be and 2 weeks of volatility are going to have no impact.

If you have concerns about the stockmarket you could alter the portfolio. If you have concerns about the fund range offered by your provider you can transfer it to another one.

Buying an annuity and taking your pension commencement lump sum because of 3 weeks of stockmarket volatility is not exactly sound financial planning and I recommend you review it.



Do you still feel confident that he/she does Ed?

I'm going to be retiring abroad within a couple of years, using the collateral in my house (500k) to live off. I have an executive pension, which I can take at 60, so I was just trying to tie up a few loose ends.

EdInvestor

I suggest you think again too.

If you left the pension fund invested at 7% after 10 years you would end up 100,970 (and 133,000 if it grew at 10%).

The annuity (after TFC) would pay 2,196 a year on a single life level basis and only 1,200 on an RPI index linked basis, which is really essential at such a young age.

You will barely notice the loss of this - it's a much better idea to leave it and take the two pensions together at 60 IMHO when the PR fund will actually be worth something more tangible.

Don't worry about the current minor volatily.

shiredeon

I understand your point...mind you, surely you must take into consideration the rate of inflation and potential annuity rates. Is £100,000 in 10 years time going to be worth much more than £50k now

dunstonh

If the growth rate is 10% a year and the annuity rate is at least double what you would get now, then yes it is worth it.

EdInvestor

shiredeon wrote:

I understand your point...mind you, surely you must take into consideration the rate of inflation and potential annuity rates. Is £100,000 in 10 years time going to be worth much more than £50k now

The comparable figures would be 6,312 compared with 2,196 a year for the level annuity and 3,840 compared with 1,200 on the index linked basis.

So yes.Balanced against inflation and possibly lower rates, you have a much bigger fund and you will be 10 years older.