Annuities

casey_junior

Decision time is fast approaching, with the leaves falling from my acer dissectum, Christmas is just around the corner and so is my annuity.
I'm working on a sum of £50k after the lump, and I've done some calculations as to joint or single life, and escalation, working on figures from This Is Money.
My conclusion is that I should take a Joint Life with no escalation as it will give me a bigger return (7.5% of my total pension income ) up to reaching 75 when the difference is zero and I get the free TV license. At 80 it will be -3.5% and at 85, -7.5%.
Any thoughts on this? and also would it be more wise to delay taking the annuity until rates rise again as they seem to have taken a knock lately?
Can I even delay it as it is a Sec32 buyout plan maturing at the year end?

dunstonh

Can I even delay it as it is a Sec32 buyout plan maturing at the year end?

Yes you can. Although it may be better to transfer it if that is the case (depending on product terms).

and also would it be more wise to delay taking the annuity until rates rise again as they seem to have taken a knock lately?

Crystal ball. Maybe but maybe not. You have unisex rates coming next year and the abolition of protected rights. So, you may be better off taking it now but on the other hand, you may be better off waiting.

Loughton_Monkey

There really is no 'correct' answer here. None of us can predict the future.

I have worked in Financial Services all my working life and know a thing or two about annuities, but could not give you any 'hard' answers at all. But my own thoughts (because I have - and will have similar decisions of my own to make) are these:

I avoid RPI inflation annuities. This is because the provider is taking a bigger risk and hence must err on the side of caution. The counter argument to this, though, is the IF, IF, IF, inflation ends up mega high, then they would turn out to have been better. Personally, I tend to go with the 'odds'. Fixed escalation annuities are more 'equitable' but I tend to think that once I understand that inflation exists (and I do!) I can simply not spend it all initially, and do my own escalation - probably at better terms. So your choice to go 'level' doesn't appear crazy.

It is important to consider 'she who must be obeyed' because a single life annuity dies with you. In my house, I consider all our assets to be 'joint'. The name it is in is purely an accident of circumstance. So take any pension pot, and assume it had been built up in the female name, then adding an older man to a joint life annuity is remarkably cheap - and a brainlessly obvious thing to do. When, however, it is compared with a single man's rate, it looks sickeningly low, but I think it's right to go "joint". In 'theory', when annuities are forced to be 'unisex priced' they should be exactly the same rate (for joint). Whether they will be is in the lap of the Gods.

So overall, a 100% joint level annuity would be my own "point of focus" and would need a lot of convincing to do something different. But I would look at all the other possibilities at the time of decision.

CannySaver_2

Hi

I'd agree with much of what has been said so far.

Selecting the right annuity for yourself can be a tricky decision, so much to think about and get right.

I'd start as you have done with looking at a pension annuity calculator such as the one on the link given to have a play about with some figures and combinations.

I'd still always use an IFA to buy the Annuity, nothing to lose as if you go direct to the provider you get the same rate and they just pocket the commission as a bonus. Probably try one local IFA and one national firm.

Re the direction of Annuity rates I'd say there is more downward pressure at the moment:

1. Gilt yields have fallen recently and as long as the UK is seen as a "safe home" i.e. we are trying to do something about our debt in a reasonably decisive way then this trend is likely to continue

2. Solvency II needs to be priced in. This is an EU directive basically telling insurers to hold more cash, to accumulate more cash insurers have to charge more, therefore lower Annuity rates.

3. Unisex Annuity rates will come in in less than 18 months time

4. Interest rates look as though they will remain low for the forseeable future

Personally, I don't think Annuity rates will rise anytime soon, so buy now and don't spend your retirement looking backwards or consider an alternative such as a Fixed Term Annuity which allows you to take an income now and get a guaranteed value in years to come (usually 3 - 10 years) which you can then use to buy another Fixed Term Annuity or indeed a Lifetime Annuity when hopefully rates may have risen or you qualify for an Enhanced Annuity. Don't dismiss Unit Linked or With Profits Abnnuities, both have their place too.

Hope this helps.

The Canny Saver

Gatser

CannySaver wrote: »

..... consider an alternative such as a Fixed Term Annuity which allows you to take an income now and get a guaranteed value in years to come....

I may consider a Fixed Term Annuity as part of mixed pension pot (with some income drawdown) ... but there is scarce info about rates on the NET. Any good links you know of?
Thanks

CannySaver_2

Gatser wrote: »

I may consider a Fixed Term Annuity as part of mixed pension pot (with some income drawdown) ... but there is scarce info about rates on the NET. Any good links you know of?
Thanks

NOt sure a fixed term annuity can be included in most online annuity calculators because of their complexity. You could speak direct to a provider and they may give you a quote, but why not speak to an IFA? In the first instance they will be happy to give you a quote based on your requirements and I would imagine that to access all fixed term annuity providers you will need to go through an IFA anuway.

Try www.unbiased.co.uk to find an IFA near you.

The Canny Saver

mania112

have you considered Income Drawdown?

damperman

hi, sorry to interrupt but could you explain how the Fixed term Annuity runs.

Thanks

CannySaver_2

damperman wrote: »

hi, sorry to interrupt but could you explain how the Fixed term Annuity runs.

Thanks

Hi

A Fixed Term Annuity provides a guaranteed level of income for a period of time, usually 3 - 10 years, and at the end of that term gives a guaranteed maturity value which can be then used to buy another retirement income product (Lifetime Annuity, Fixed Term Annuity, Income Drawdown and so on).

They are generally written under Income Drawdown rules and can suit the following type of people:

1. Those who need an income now but do not wish to buy a Lifetime Annuity because they think they may qualify for an enhanced rate in the future or they think annuity rates might rise :rotfl:in the future

2. Those people who want income now but want more flexibility in the future

3. People who want guarantees, around their income and future value of the fund

4. People who want the tax free cash but not the income and want to take no risk with their fund

They are relatively new, and the market is still developing, with only a few providers in this space at the moment. As with most financial products right for the right person and wrong for the wrong person.

If you need to investigate more see an IFA www.unbiased.co.uk

The Canny Saver

damperman

Thanks for that CannySaver, that probably sounds like the way i need to go.

Thanks

CannySaver_2

damperman wrote: »

Thanks for that CannySaver, that probably sounds like the way i need to go.

Thanks

Glad I could help, take advice though as that was just a very short summary.

Not every IFA it seems has caught up with Fixed Term Annuities so when you look for an adviser make sure you tell them on the phone that is part of what you would like to discuss.

The Canny Saver