Buy an annuity ahead of unisex legislation or wait?

Geoffo_M

I am a 63 retired single male, with no heirs & no major debts who will reach pensionable age in May 2013. Currently, I live off income from savings interest which covers all but around £4k of my annual outgoings. When I reach 65, I have a section 32 buyout plan that will give me around £9k pa & I also will have around 100k sitting in a pension pot with Aegon. With unisex annuities set to come into force in December 2012, I wonder if I should buy an annuity before then rather than wait til May 2013? In essence though, I’m lucky in that I could afford to defer buying an annuity as I could manage from the £9k buyout plan & the state pension. What is also making it tricky in deciding whether to buy an annuity is judging just how much further annuity rates are expected to fall, though I realise no-one will have the answer to that. I’d appreciate any views?

CannySaver_2

Hi

Things which could push Annuity rates down still further:

1. Gilt yields could continue to fall if the UK is seen as a continuing 'safe have' (or best out of a bad bunch!). Probably not a lot that will push gilt yields up in the short term at least

2. Solvency II is likely to have a negative effect on Annuity rates, although this is likely to be phased in over time

3. The gender discrimination ruling could, as you say, push Annuity rates as a whole downwards

4. The fact that ill people are now pulled out of the general Annuity pool through the development of Enhanced Annuity rates has alsi had a negative effect on rates

5. We continue to be living longer

Things which could push Annuity rates up:

1. Providers jockeying for competitive position, however there is only so much they can do

2. Gilt yields may rise, however this could take some time, possibly when QE starts to unwind itself

3. Er....can't think of many more reasons!

In my very humble opinion you buy now or defer for a prolonged period in the hope that rates will rise. The only problem with that is you will have missed out on the 5% (gross & approx) per year income .

There are of course other options such as income drawdown or fixed term annuities which could give you an income now and not tie you in to current annuity rates.

In haste I;m afraid but hope this helps.

The Canny Saver

dunstonh

3. Er....can't think of many more reasons!

3 - If there is protected rights on the fund and you dont need the annuity paid the defined way then waiting until after April 2012 when protected rights are abolished will give more choice.

4 - if there are guaranteed annuity rates, then these are unaffected by rate changes. (op mentions a section 32 buy out bond. GARs are not uncommon on S32 BOBs)

5 - if there is a GMP on the S32 then taking it elsewhere will require a transfer rather than open market option which could see the GMP removed and a far lower income generated.

Geoffo_M

That's interesting thanks. I had no plans to move the buyout plan, I'm sent a statement every year which tells me I will receive £9k when I'm 65. There is no mention of a GMP or protected rights either. It is the other plan I was wondering more about & how much I would be likely to lose by the introduction of the unisex legislation 5 months before I reach 65. Then I could decide whether it was worth me buying an annuity before that date.

CannySaver_2

dunstonh wrote: »

3 - If there is protected rights on the fund and you dont need the annuity paid the defined way then waiting until after April 2012 when protected rights are abolished will give more choice.

4 - if there are guaranteed annuity rates, then these are unaffected by rate changes. (op mentions a section 32 buy out bond. GARs are not uncommon on S32 BOBs)

5 - if there is a GMP on the S32 then taking it elsewhere will require a transfer rather than open market option which could see the GMP removed and a far lower income generated.

Thanks, although these are reasons to delay or not buy an Annuity, they are not actually reasons why Annuity rates will rise.

Out of interest, as someone who works in the field, when do you think Annuity rates may start to rise, if ever!

The Canny Saver

Geoffo_M

CannySaver wrote: »

Thanks, although these are reasons to delay or not buy an Annuity, they are not actually reasons why Annuity rates will rise.

Out of interest, as someone who works in the field, when do you think Annuity rates may start to rise, if ever!

The Canny Saver

It's a shame you couldn't have concentrated more on answering my question rather than try and spark a disagreement between you and dunstonh. I've noticed it's a big fault on these boards where 'experts' become embroiled in personal disagreements between each other, rather than help other original poster out with their problem. A clash of egos I suppose, sad but true!

laughingboy

Geoffo_M wrote: »

It's a shame you couldn't have concentrated more on answering my question rather than try and spark a disagreement between you and dunstonh. I've noticed it's a big fault on these boards where 'experts' become embroiled in personal disagreements between each other, rather than help other original poster out with their problem. A clash of egos I suppose, sad but true!

He did concentrate on answering your question, post 2? Idiot

CannySaver_2

Geoffo_M wrote: »

It's a shame you couldn't have concentrated more on answering my question rather than try and spark a disagreement between you and dunstonh. I've noticed it's a big fault on these boards where 'experts' become embroiled in personal disagreements between each other, rather than help other original poster out with their problem. A clash of egos I suppose, sad but true!

Geoffo M

Just to be crystal clear, I was not trying to spark a disagreement between myself and dunstonh, I was simply saying that whilst these were all valid points they were not actually reasons why Annuity rates will rise.

I value dunstonh's point of view, which is why I asked him when he thinks annuity rates will rise. He works as an IFA and is therefore close to the coal face on this sort of thing, certainly closer than us mere amateurs.

I think my original post was lengthy and relevent enough to be classed as 'answering the question' and I'd appreciate you reserving comments about my ego until after you get to know me....only then can you confirm that it is indeed huge!

The Canny Saver

jamesd

Geoffo_M wrote: »

I am a 63 retired single male, with no heirs & no major debts who will reach pensionable age in May 2013. Currently, I live off income from savings interest which covers all but around £4k of my annual outgoings. ... I also will have around 100k sitting in a pension pot with Aegon

Why aren't taking an income from investments within the Aegon plan? You should be able to take a £25,000 lump sum to gradually move into S&S ISAs to generate ongoing tax free income and something between 4% and 6% of the remaining £75,000 each year in income, but capped by the GAD limit calculation which will currently limit you to 5.3% maximum taken out as income based on your age, gender and a 2.5% 15 year gilt yield. That's a maximum of £3,975 from the £75,000.

There's no need to buy an annuity to do this, you can stay invested and just change the investments.

This may let you defer taking the state pensions for two or three years, typically the optimal delay time for a man in good health.

I'm assuming that you are in good health. If you're not you should mention that because it can sometimes make a big difference to the choices.

Geoffo_M wrote: »

I’d appreciate any views?

Largely forget annuities for the moment and use income drawdown from the investments. That way it won't hurt you or your savings to wait because you'll still be getting ongoing income.

Then do gradual buying of level annuities at say 5% of the pension pot's value each year to gradually switch from investment to annuity income if you like the idea of annuities rather than investments. That'll smooth out the annuity rates and let you gain over time from the increase in annuity rates with age as well as any decrease in your own health. It'll also smooth out the variations in investment values, reducing that risk as well. Along the way you'll probably end up buying from many different annuity companies and that'll reduce your risk there also.

Knowing why the buyout plan will pay you £9k could be important. Is it from a defined benefit (final salary or similar) scheme or is that just some estimate of what a transfer or defined benefit set of contributions might buy in the way of an annuity?

Spending all of the money on an annuity at one time is a financial risk that you just don't need to take, so you shouldn't take it.

Looking at your prospective income level you may come close to reaching the £24,000 level where your over 65 increased personal allowance, often called age allowance, is reduced by £1 for every £2 of income until it's back to the standard personal allowance. If your calculations of your taxable income from all sources comes close to this including the state pensions you should be sure that you very carefully consider taking the full 25% lump sum so you can put the money into S&S ISAs which as tax free investments won't count towards this income threshold. This may also make it not pay to defer the state pensions.

I'm assuming around £7,000 from the state pensions but it could be £3,000 or more extra since you were working while SERPS was active. Get a state pension forecast to find out if you haven't done that already. £7,000 + £9,000 + 4% of £75,000 = £19,000 plus something from your savings if they aren't in tax wrappers and the possible extra income from the state pensions could take you into the troublesome range.