Fixed Term Annuities

Gatser

An Annuity Calculator has just quoted:
Male age 55
Wife age 55
10yr guaranteed period
level payments
Annuity Rate: 5.26%

Any idea how a Fixed term (10yr) annuity would compare?

I cannot find an online calculator for a rough idea.

thanks

rabbitmumu

what do you mean by a "fixed term 10 yr annuity" ? You mean receiving a level pension only for 10 years?

Gatser

rabbitmumu wrote: »

what do you mean by a "fixed term 10 yr annuity" ? You mean receiving a level pension only for 10 years?

Yes.... sort of....
A FIXED TERM ANNUITY pays out over (say) 10 years, but then returns an agreed maturity value at the end of the 10 years.
I am interested to see what sort of maturity value we could get!

They are supposed to be better than plain Annuities because the Insurance company do not keep the lot once you die.
They must take a reasonable cut for this though....

rabbitmumu

Oh I see - I have never heard of it and a quick search online doesn't seem to have any online calculator. Probably it's not widely available yet based on the article below.

http://www.ftadviser.com/FTAdviser/Pensions/Personal/RetirementPlanning/Annuities/News/article/20100205/adf2083c-11b0-11df-bbca-0015171400aa/LV-poised-to-launch-fixed-term-annuity.jsp

Pros and cons if you haven't seen it yet. http://www.retirement-partnership.co.uk/adviser/learn-discuss/learn/articles.aspx?aid=41

zygurat789

Gatser wrote: »

Yes.... sort of....
A FIXED TERM ANNUITY pays out over (say) 10 years, but then returns an agreed maturity value at the end of the 10 years.
I am interested to see what sort of maturity value we could get!

They are supposed to be better than plain Annuities because the Insurance company do not keep the lot once you die.
They must take a reasonable cut for this though....[/QUOTE]
I can't see them not making their bob or two

SallyG

Nearest I've ever found to an illustration but dated 2007 - providers seem to be piling in now so has to be a good deal for them?


"Living Time, which is backed by American insurance giant and Manchester United sponsor AIG, gives the following example of the income offered to a man aged 65 from its 75 Plan compared to the top lifetime annuity provider for a price of £100,000*.
The plan would pay an income to age 75 of £7,179 and a lump sum at the end of the 10 years of £78,750. A lifetime annuity from top-of–the–table Canada Life would pay an income of £7,148. Living Time says the guaranteed lump sum would be sufficient to buy an annuity income of £6,520 a year based on current rates. The risk element to the plan is that future annuity rates may fall, leaving customers worse off than if they had bought a lifetime annuity at the outset."

Read more: http://www.thisismoney.co.uk/pensions/article.html?in_article_id=420919&in_page_id=6#ixzz1AqGa3s00

zygurat789

LV on 0800 169 1256 say they do these.

yelf

ive run quotes before and if you rerun the annuity quote for the Maturity Value it never works out. And remeber solvency 2 is coming in 2 which will push annuity yields down. They sound good, but if you run the figures correctly they very rarely work out in your favour.

Cautious_Investor_3

Hi

Living Time are probably the most well known provider of Fixed Term Annuities, they will be able to get you a quote as could your local IFA.

Fixed Term Annuities have their place for a small number of clients, for example:

1. Where someone does not yet qualify for an enhanced annuity but may do in the future

2. When someone wants more flexible death benefits but does not want the investment risk which may be present with income drawdown

3. They can be useful when an individual needs to take the tax free lump sum but doesn't need the income and has a low tolerance for risk

4. If you feel that now is not the right time to buy an annuity (low interest rates, QE still having an effect) and rates will rise in the future this allows you to get an income now without tying in to today's annuity rate. Rates have started to rise over the past couple of months, who knows if this is part of a trend or just a blip.

There are of course downsides to Fixed Term Annuities and the returns on the shorter termed contracts can be disapointing, but they should be considered and it never hurts to get a quote!

I hope this helps.

The Cautious Investor

Loughton_Monkey

I'm a bit confused by this thread.

OP starts with a fairly standard annuity quote. We have not established whether this is intended to be purchased from a pension fund or from free capital. If a pension fund, then buying a 10 year level annuity only is not possible, and so discussion is academic. If we are talking about free capital, then yes of course, a 10 year purchased annuity will provide a greatly enhanced income - but of course only for 10 years. The majority of annuitants aged about 65 would be expected to survive 10 years and so the annuity would be (extremely roughly) 10% (that's the return of capital) plus an amount for average interest (less charges profit) - which would provide another percent or two.

If, on the other hand, we are talking about a pension fund (in which case you cannot buy such an annuity - it has to be for life) then all OP seems to be describing is a drawdown facility. America may be different, but I have not heard, in this country, of any company that is prepared to quote both a guaranteed drawdown amount (for 10 years) plus a guaranteed residual value to provide ongoing pensions, although I freely admit ignorance of "Living Time" quoted above which may for all I know be something similar.

Annuity rates are not considered a 'rip off' - although providers are, of course, making a profit. Someone dying 'young' will always have received an extremely small %age of cost back, but mainly at the expense of the other half who die 'old'. Same concept as Whole Life assurance - but in reverse. A widow of someone who died early having bought insurance will passionately welcome that purchase but if husband lives a long time, she will look back and say 'waste of money'. Conversely, the widow of an annuity purchaser who dies young will regret that decision to buy 'the annuity insurance', but will consider it money extremely well spend if husband lives a very long time.

Us married couples have a range of solutions, the two extremes tending to be:

1. The safe option of buying joint life (100% spouse) annuity. You 'know' exactly what you're getting, and you'll get it as long as one of you is still living. There is a 'technical loss' if you both die earlier, but do either of you really care once you're dead?

2. The adventurous option of some form of drawdown. This ensures that no annuity company is ever going to profit from you. Your joint 'longevity risk' is not underwritten with the consequence that longer than average life makes it almost certain that the money will run out - however good an investor you are at age 80 (or whatever). But at least joint early death will result in some money being paid out - albeit at 55% tax.

vbm

loughton, you can indeed buy a short term annuity.

It is a form of USP (must be within GAD rates etc), but you can hand over a fixed amount for an annuity payment of upto five years