Guaranteed Annuity – any more surprises?

Uncle_Stinky

I am 61, unemployed for past two years, now partially sighted, wife retired, savings above benefit levels.

I have an Aegon (Scottish Equitable) Reflex pension policy started in 1982, and I soon intend to convert this to an annuity.
The policy has guaranteed benefits which equate to a minimum annuity of £2205 for a fund of £22,500, so far so good.

However, although the policy states that provision will be made for the member to elect for the annuity to have a guarantee, a fixed percentage increase, or be payable on a joint lifetime, Aegon state that the guaranteed annuity only relates to single life, paid annually in arrears, with no guarantee and no escalation. Any other annuity types will be based on current annuity rates (which would give a joint life annuity of about £1170 – or about £10 pw for my wife after I pop my clogs)

It seems obvious to me that I should take the guaranteed option and hope for a long life and low inflation. But am I missing something?

atush

Well, if you have no other pension (and your wife doesn't) and you predecease her, she will be left w/o a pension apart from her state pension. But given if you give up this GAR, and get a joint life pension, the annuity rate will be less than half. So if you save half for as long as you can, that would help.

I would be inclined to keep the GAR and get a SL, unless you feel your wife will not have enough to live on. Hard to determine this as we don't know how much you hve in savings, if she has a pension, and if you won property that you can downsize from.

dunstonh

Aegon state that the guaranteed annuity only relates to single life, paid annually in arrears, with no guarantee and no escalation.

That is normal with Aegon plans. Often it renders the guarantee worthless.

It seems obvious to me that I should take the guaranteed option and hope for a long life and low inflation. But am I missing something?

You are not missing anything. What you should do will depend on your finances and that of your spouse.

Loughton_Monkey

You aren't missing anything. It is important you fully understand the guarantee, and if it means taking a restriction such as no guarantee, or no spouse pension, then perhaps you should take it.

I don't know Aegon at all [in respect of their own previous offerings - although I do have a small purchased annuity with them myself]. But other pension companies do offer a few more choices. Many such companies are "not very good" at advertising what exactly the guarantees are. Friends Provident [for example] seem to offer all retirement quotations at 'market rates', with a strong notice that you are free to shop around. They do include a leaflet, however, giving sample guaranteed rates, but any 'man in the street' could be forgiven for not noticing its relevance. Their text advises that other combinations of "guaranteed" rates are available.

My brother, for example, would get 9.99% annuity rate for a 5-year guarantee, payable monthly in arrears. By the simple (and cost-effective) device of forgoing the 5 year guarantee, and having it paid annually will get 11.6%. With no spouse or dependents, this is a brainlessly obvious option to take.

So do double check what Aegon are saying.

CannySaver_2

Hi there

A few thoughts for you:

1. Only you can say whether the additional circa £1,100 per year you would get from the imperfect (but nevertheless attractive in terms of rate) GAR from Aegon is preferable to making provision for your wife in the event of your death by taking an alternative Annuity including a spouses pension

2. Double and triple check with Aegon that they will not amend the terms of the GAR to include a spouse's pension. Speaking to a different person may elicit a different answer!

3. Double check again the rate if you move it elsewhere using the open market option, a quick check using an online pension annuity calculator such as the one given in the link is sufficient. Although to be fair the rate you quote looks broadly accurate

4. Check whether you qualify for an enhanced annuity due to health or lifestyle issues. You should check this for both you and your wife. If you don't qualify and your health is good you might be prepared to take a greater gamble on the GAR from Aegon. A quick chat with a friendly IFA who works in this market will inform you whether you or your wife qualify for an enhanced annuity

5. If you decide to accept the GAR comfort yourself in the knowledge that very few people are getting a return of 10% gross these days, certainly no one else buying an annuity (without GARs) are getting this level of income....it could be worse!

The Canny Saver

Uncle_Stinky

Many thanks for your replies.

I shall take the GAR as I had originally decided – I just lacked confidence in my own reasoning.

We have some ISAs and NS&I bonds, so we should be OK (insofar as one can predict anything). I shall just have to self-fund the next three-and-a-half years until my state pension kicks in. However there is not much point in having a rainy-day fund if one grumbles about spending it when it starts raining!

CannySaver_2

Uncle_Stinky wrote: »

Many thanks for your replies.

I shall take the GAR as I had originally decided – I just lacked confidence in my own reasoning.

We have some ISAs and NS&I bonds, so we should be OK (insofar as one can predict anything). I shall just have to self-fund the next three-and-a-half years until my state pension kicks in. However there is not much point in having a rainy-day fund if one grumbles about spending it when it starts raining!

Sounds like a plan.

Might sound obvious but use the most tax inefficient savings first, ISAs should generally be used last, especially if they are invested in equities and their value is depressed.

The Canny Saver

FARJARDO

I,am in the same boat(thank God).If your in good health take the higher rate,don,t think i,am going to demise tomorrow.These companies don,t want people like us who can ask others on this forum who know more than us for good advice FREE......:j

jamesd

For your wife's income you could consider purchasing a life insurance policy on your own life with her as the beneficiary. Not one of the anyone accepted ones you see on TV.

ffacoffipawb

jamesd wrote: »

For our wife's income you could consider purchasing a life insurance policy on your own life with her as the beneficiary.

Is she a bigamist?