Are annuity returns quoted after lump sum taken out?

keithnic_2

Sorry, this is probably a really basic question, but if an annuity is quoted as returning £6,500 per £100,000 is this after you have taken a 25% lump sum out or before?

So if I have £100k pension pot do I get £25k lump sum and £6,500 per year until I die or would I need pension pot of £133,333, then withdraw £33,333 as lump sum and get £6,500 per year on the remaining £100k.

ManAtHome

The anuity is based on the amount you pass over to the company, so is after you've taken the 25% (so you'd need a total fund of £133k ish to get the £6,500 in your example).

Don't just accept the offer from your pension fund holder though - see an IFA and get them to shop around.

keithnic_2

Thats brilliant thanks very much ManAtHome. Doesn't sound like a very good return to me. Thinking aboutg investing in property or corporate bonds. At least when you die your children will inherit something.

I suppose the advantage of pensions is the tax relief as you put funds in, but after all the charges the administrators take out over the years that may well be eroded. I think I like the flexibility of being able to do what I want too rather than being forced to buy an annuity. Too many people making money out of you every step of the way.

dunstonh

Doesn't sound like a very good return to me.

6500 on £100k is is 6.5%. can you find any product out there that guarantees 6.5% for life?

Thinking aboutg investing in property or corporate bonds. At least when you die your children will inherit something.

How does that differ to pensions if you include value protect guarantee?

I suppose the advantage of pensions is the tax relief as you put funds in, but after all the charges the administrators take out over the years that may well be eroded.

And how does that differ to running a property or holding other investments in other tax wrappers?

I think I like the flexibility of being able to do what I want too rather than being forced to buy an annuity. Too many people making money out of you every step of the way.

If you dont want an annuity then dont buy an annuity.

keithnic_2

How good 6.5% for life is depends on how long your life lasts! My dad died at 69 and so I'm not expecting to live long into my 70s.

I appreciate your reply Dunstonh as I still have much to learn about pensions planning. I'd never heard of "value protect guarantee". I thought that after you'd purchased an annuity and outlived the guarantee period, then once you died your estate would receive nothing.

dunstonh

How good 6.5% for life is depends on how long your life lasts! My dad died at 69 and so I'm not expecting to live long into my 70s.

In your case then it makes sense to consider guarantees.

I'd never heard of "value protect guarantee". I thought that after you'd purchased an annuity and outlived the guarantee period, then once you died your estate would receive nothing.

Not every provider offers it. Certainly not the ones you would normally have the pension product with.

Hopefully, the Conservatives will follow through with their pledge to remove annuity compulsion on pensions. That will make pensions so much more attractive.

guitarman001

In what way would you invest in property?

There's only one way property is going, and that's down - barclay's themselves did a presentation recently showing how property was the biggest bubble yet to fully pop. Repossessions are through the roof and nobody can realistically afford today's insane prices. If rates rise, people will be in big trouble - yes, I do also check out housepricecrash, and no - and not a maniac! But I would be very careful regards property which I believe will tank massively. It's common sense!

keithnic_2

Sorry, we're invested in property already. We have a choice of selling a house that we rent out at the moment or spending some money and increasing the rental income. Selling would cost £11,000 plus and then there would likely be upfront charges if we invested in some kind of fund(s) so we're thinking of improving the house and keeping longer term and treating as our "pension".

To be honest, we were worried about what to do with any funds if we did sell the house. There is so much uncertainty at the moment. Would you keep it in Sterling or move to a safer currency? Shares v bonds, etc.

We lost a fair bit with Lloyds and RBS over the last couple of years so really don't trust equities. I know shares have recovered reasonably well, but feel very let down by the investment community.

I think long term property is still a good investment so thinking keeping the house is the "least worst" investment decision :-)

EdInvestor

There is no annuity compulsion any longer.What needs to be removed is onerous tax levies on people who die over aged 75.

Up to that age, the remains of a pension pot which has been held in income drawdown can be left to heirs as a lump sum with a 35% tax charge deducted (basically you are paying back the tax relief the Govt gave you,which you would do anyway if you took the money as income, fair enough).

But after 75, this leaps to 82%.It is still better than an annuity where you pay 100%, but that's all you can say.This is what needs to be changed.

The 35% tax deduction should be extended until death at any age.

jamesd

35% isn't high enough to discourage higher rate tax payers from using it for tax planning and inheritance planning. Somewhere between there and 82% or perhaps with a cap on an amount getting a lower rate would do the job and be less open to use for purposes other than primarily providing retirement income for a living person for the rest of their life.