£100k for an annuity, what rate should I look for?

ajw1100

I have been advised by my IFA to take an annuity, the pot is worth around £135k so take the tax free 25% and I have the £100k and am 62 years young.

I have two thoughts.
1. Go for a level annuity, as it seems I would need to live for at least 15+ years for an annuity with RPI to catch up and knowing my luck I will not last that long.

2. Go for an annuity giving my wife 50% after my death if my luck is going as normal (See above).

My question is what sort of yearly return should I be getting on 1 or 2? My IFA has given me some figures but am not sure if these are good or bad!
I am sure someone here can give me some idea of whats around.
It's not that I don't trust my IFA I just want to see what is on general offer. I am healthy enough not to warrant an enhanced annuity and have good cash savings. I am also as tight as a ducks wotsit!

feesarefare

ajw1100 wrote: »

I have been advised by my IFA to take an annuity, the pot is worth around £135k so take the tax free 25% and I have the £100k and am 62 years young.

I have two thoughts.
1. Go for a level annuity, as it seems I would need to live for at least 15+ years for an annuity with RPI to catch up and knowing my luck I will not last that long.

2. Go for an annuity giving my wife 50% after my death if my luck is going as normal (See above).

My question is what sort of yearly return should I be getting on 1 or 2? My IFA has given me some figures but am not sure if these are good or bad!
I am sure someone here can give me some idea of whats around.
It's not that I don't trust my IFA I just want to see what is on general offer. I am healthy enough not to warrant an enhanced annuity and have good cash savings. I am also as tight as a ducks wotsit!

Why did your IFA discount Income Drawdown?

Linton

Look on the FSA website - http://www.moneymadeclear.org.uk/tables under pension annuities. Dunstonh doesnt like it but for normal annuities it will give a resonable idea of what you can get.

Suggest you work through some figures on a spreadsheet trying a range of inflation rates and %'s to the Mrs. You might not live long but if you only leave her 50% of your level pension she might not be treasuring your memory 20 years later as she struggles with the equivalent of a few £s a week after rampant inflation.

dunstonh

Look on the FSA website - http://www.moneymadeclear.org.uk/tables under pension annuities. Dunstonh doesnt like it but for normal annuities it will give a resonable idea of what you can get.

For a guide its ok. However, the figures are not accurate enough to make a choice on the provider. The bit I dont like is where people make decisions on the data given by that site for a once in a lifetime decision using data that can see certain providers not included, assumptions used which may or may not apply and lacking enhanced terms that may be available through IFAs.

yelf

just ask your IFA to see his/her research. Surely??

Cautious_Investor_3

Hi

A few thoughts:

1. Use an online calculator such as the one below to give accurate, company specific quotes, you can then compare these against what your IFA has given you:

http://www.!!!!!!.uk/free-services/annuity-calculator/

2. Consider all the alternatives, two that spring to mind are income drawdown or a fixed term annuity (there are others) both of which would delay the time when you make the final decision to purchase a lifetime annuity. We are in unprecidented economic times with low gilt yields and low interest rates pushing down annuity rates, is this the time in the economic cycle to tie yourself into an annuity rate for the rest of your life? I make no comment on the direction of annuity rates long term (although they have risen over the past 6 weeks or so), other than to say be very sure that you want to lock into a lifetime annuity now

3. One that should appeal to a tight wad , negociate, both with your IFA and get him or her to do the same with the annuity provider. Both should move on commission in the case of the IFA and rate in the case of the provider, don;t take no for an answer because they will both move

4. The RPI v Level debate is interesting, inflation is creeping upwards (NB today's figures) and there are few donward pressures in the short term on inflation. But remember two things, firstly the breakeven point is a long way in the future and secondly, all annuity providers will put a cap on RPI if you link an annuity to this, make sure you know what the cap is before you sign up!

I hope this helps.

The Cautious Investor

ajw1100

Cautious Invester wrote;

two that spring to mind are income drawdown or fixed term...

My IFA did mention income drawdown as an option but mainly recommnded the annuity, I have also read the Annuity guide from this (MSE) website which states on page 20 that 'USP's (Income drawdown)... are not recommended for funds of less than £200k...'

Also read that they are costly in management and risky as they are reliant on a very variable market, and need a close eye kept on the funds contained in them. I am not savvy with funds/stockmarket/investing and do not want to risk any more losses. (Previous IFA struck off but left a large hole in my SIPP. Did get back £48k from FSCS though) I also have the Money Made Clear guides.

Cautious Invester wrote;

One that should appeal to a tight wad , negociate, both with your IFA and get him or her to do the same with the annuity provider. Both should move on commission in the case of the IFA and rate in the case of the provider, don;t take no for an answer because they will both move

That's interesting, (With apologies to Steve Davis!) My IFA said he would be paid commission from the provider, so no charges to me. How would negotiating his commission help? I read somewhere that I could buy the annuity/USP directly but would not gain any advantage as the provider would not pass on the saved IFA commission to me. In work I was a buyer so haggling is part of my nature:).

In 2013 I will get my state pension and could live on savings until then if this would be to my advantage and then buy an annuity. I just am not sure what to do:(

Thank you all for your advise, both above and below.;)

dunstonh

I have also read the Annuity guide from this (MSE) website which states on page 20 that 'USP's (Income drawdown)... are not recommended for funds of less than £200k...'

That figure of £200k doesnt match anything the FSA suggest (they feel closer to 100k unless there is other secured income available, in which case there is really no minimum other than justification).

Also read that they are costly in management and risky as they are reliant on a very variable market

10 years ago maybe they were costly but not today. Nowadays they cost little or no more than using an ISA or unwrapped investments. Indeed, its possible to get them cheaper than a stakeholder pension. They are reliant on investment returns but that doesnt mean you invest in only one area and doest mean you go gung ho into high risk stockmarket.

need a close eye kept on the funds contained in them.

...like any investment. However, you typically need a greater amount of monitoring due to mandatory review points and limited timescale (although that limitation is going next year which will alter things slightly).

I am not savvy with funds/stockmarket/investing and do not want to risk any more losses.

Which basically eliminates drawdown as you dont want to have investment risk and are happy to disregard the advantages of the unsecured option to go with the secure income option instead (and accept that versions disadvantages and advantages).

My IFA said he would be paid commission from the provider, so no charges to me. How would negotiating his commission help?

On an annuity of that size, going fee basis is likely to be cheaper. (unless the fee is higher than the commission - which it should really be in this case). So, you agree the fee and only commission to the value of the fee is collected. Any surplus commission is then included in the pricing of the annuity rate. So, a lower commission means a higher income. It wont be much as the cost of advice is factored in over the life expectancy. So, saving say £500 will see that £500 paid over say 20 years. However, its better than nothing.

I read somewhere that I could buy the annuity/USP directly but would not gain any advantage as the provider would not pass on the saved IFA commission to me.

Correct. Also, the distribution channels allow IFAs to get better terms some of the time than their direct option. So, you can actually end up with less going direct.

If you have protected rights in your pension, it may make sense to defer the decision on protected rights until 2012 when they are abolished and become non protected rights (and therefore allow a greater choice of income options). You can split a pension that has both non protected and protected rights to take only one bit now.

feesarefare

ajw1100 wrote: »

I just am not sure what to do:(

Which is a real shame given that you have been to an IFA.

Your not meant to know what to do before you go to an adviser, not after !:o

Cautious_Investor_3

ajw1100 wrote: »

That's interesting, (With apologies to Steve Davis!) My IFA said he would be paid commission from the provider, so no charges to me. How would negotiating his commission help?

In 2013 I will get my state pension and could live on savings until then if this would be to my advantage and then buy an annuity. I just am not sure what to do:(

Thank you all for your advise, both above and below.;)

The commission point has already been answered, but also get your IFA to push the Annuity provider for a better rate. They will all move on the rate they just need to be pushed.

Your IFA really should be advising you on the best options for you, but there are numerous ways of vesting your pension, i can think of nine off the top of my head, and not all IFAs understand or even consider all of these.

Why don't you see another adviser for a second opinion? You only get one shot at this if you buy an Annuity and could have years to repent if you make the wrong decision.

The Cautious Investor

feesarefare

Cautious_Investor wrote: »

not all IFAs understand or even consider all of these.

The Cautious Investor

would it be possible for you to expand on this comment?