When will annuities be better value??

sandsy

DominicH wrote: »

Interesting. I'm going on the ONS stats for 2008-2010 of an 18-year life expectancy for a 65-year-old UK male. Has life expectancy shot up in the last year or so?

I'm basing it on historic mortality figures reported by insurers for pension annuities (typically better life expectancy than general population mortality), incorporating improvements to date and allowing for future mortality improvements based on the 2011 Continuous Mortality Investigation model.

DominicH

sandsy wrote: »

I'm basing it on historic mortality figures reported by insurers for pension annuities (typically better life expectancy than general population mortality), incorporating improvements to date and allowing for future mortality improvements based on the 2011 Continuous Mortality Investigation model.

I see. That would seem to be more pertinent than the ONS numbers for the entire population. Quite a difference there.

srcandas

Proxy wrote: »

I think you need to read a bit more about capital requirements for annuity providers. Particularly the tough solvency 2 rules which will be in shortly.

Part of the reason rates aren't higher is the stringent requirements imposed, rightly or wrongly.

Profitability isn't at fabulous as you make out, neither is it as straightforward as you'd like to believe.

I can believe the industry has its problems but at the end of the day they are of their making. But regardless those offering a product should be able to demonstrate value and the general consensus is that they don't.

As a private individual I can calculate that if 20 men aged 65 got together and threw £100k each into a repository which made 3% average per annum they could all withdraw £5500 each per year. Using an average age expectancy far worse than any discussed here, and if 6 lived to be 113, there would still be money to pay out (about £245776.48).

When I buy a bar of cadbury's chocolate I know it would cost more than £1.50 to make even if I pooled resources with 19 other chocolate lovers, if we tried to make a VW golf each we would spend more than buying them, if .... and that is because most businesses demonstrate added value.

The annuity companies fail to do this IMHO.

But as I said it is the way it is. :beer:

Freecall

Well put srcandas. As annuity rates fall towards the underlying rate of return available in the market then the importance of life expectancy diminishes.

When they fall below the returns available on the open market (as they appear to be doing) then it becomes irrelevant.

My High Street bank will give me 3% in instant access and they have no interest in how long I might live.