Annuity and Net Wealth

ssooty54

Hi all,

When taking an annuity out does this go into your net wealth. I believe it doesn't but really am unsure on this. All seems confusing

Regards
ssooty54

CannySaver_2

Hi

Who defines net wealth? For what purpose are you trying to define net wealth?

The Canny Saver

jamesd

Some people might want to include the net present value of the stream of annuity payments as part of their net wealth. Depends on the purpose of the calculation.

ssooty54

Just been reading husbands work books and couldn't make head or tail of it. got a tad confused. It has taken me a month to get my head around annuities

zygurat789

An annuity is like a life insurance policy in reverse.
With a life insurance policy you give the insuance company a small amount each month and when you die they give your estate a large lump sum.
With an annuity you give the insurance company a large lump sum and they give you a small amount each month until you die.

Loughton_Monkey

It's all a matter of opinion.

I happen to include it in my own "Net Wealth". I do this on logical grounds. In other words, if I spend my life putting £100 a month into a pension plan, then logically my 'net wealth' is going up gradually and [for example] culminates in a pension pot of £100,000 the day before it is 'annuitised'.

It stands to reason that you haven't, all of a sudden, become poorer by £100,000. In practical accounting terms, you have "withdrawn" [say] £6,000 from this account (and spent it), and the 'wealth' has fallen by the same £6,000, but risen because of nominal 'interest' [basically the bond yields of the annuity provider], and so technically, your net wealth is now £95,500 [or whatever] - the figure being (roughly equivalent to) what it would cost to buy the same £6,000 annuity now you are a year older.

atush

If it is pension pot, I include in net wealth. Once an anuity, I consider it income.

Loughton_Monkey

atush wrote: »

If it is pension pot, I include in net wealth. Once an anuity, I consider it income.

I wouldn't say this is wrong, because it's a matter of personal choice. We're talking about 'accounting' at the end of the day which is a minor issue.

But I look at it this way:

The pension pot, while building, is simply like a Stocks & Shares ISA. It's definitely net wealth. But what if you opted for flexible drawdown? This, then, could only be treated as a continual 'slab' of wealth, with the occasional 'transfer' to your current account, and thence to the butcher, the baker, and Gordon's Distilliary.

Well I consider an annuity the same, really. The only difference is the timing and amount of the 'transfer' happens to be set in concrete.

As pensioners, then what we have is what we have. It's not as if 'creative accounting' can keep Mr Taxman away, so we just need to sit in our counting house and count it in a way that suits us best individually.

System

Wealth is only money you could access if you wanted to.

Savings, ISAs etc are wealth - you could cash them in.

You can only cash in part of a pension pot.

You can't cash in an annuity at all.

Enjoying income or pleasure from something that you can't sell isn't wealth. Otherwise, you would have to include things like a secure job for life, public amenities, hospitals, roads, etc.

kidmugsy

I tend to categorise things according to how they are taxed.

System

kidmugsy wrote: »

I tend to categorise things according to how they are taxed.

Taxable:

Earned income
Houses
Pensions
Annuities
use of company car
meals in restaurants
Electricity

Not taxable:

Tax free NS&I income
Yachts
Tax credits
ISAs
Food and children's clothing
Water


So which category do you count as wealth?