Annuities anyone?

Gatser

With Annuities being a total rip off (IMHO) is there any sign of a better alternative other than Drawdown.
What about fixed term annuities? are these a better alternative?

mania112

Fixed Term Annuities are usually comparable to Income Drawdown, and rarely (in my opinion) preferable over an Lifetime Annuity.

For example, a client recently had the same quandary and we calculated that at the end (5 yr term) he would need an Annuity quote which was 19% higher than the quote he had now.

As he was relatively young and in OK health now, he couldn't see this being possible, and we couldn't predict that level of increase in Gilt Yields (which are the basis for Annuities)

The main alternative now, if you believe Annuity rates to be poor (which they are) is to hold off making a commitment like that.

You could continue with the Personal Pension - or take some tax free cash if needed and remain invested with Drawdown. You don't need to take income from Drawdown.

But, as you seem to have realised, if you want/need Income now there are only 3 options.

jamesd

If there is a prospect of reduced life expectancy then drawdown via a scheme pension might be a useful alternative to capped income drawdown. A scheme pension uses an individual life expectancy estimate and can pay out more if life expectancy is reduced.

Costs are higher than for standard pensions so it's not something to do for pots smaller than perhaps £50,000 and significantly larger is likely to be better. Depends on just how short the life expectancy is, even less could be worthwhile if it's fairly short.

Other variations on the theme include getting enough income that qualifies as guaranteed to qualify for flexible drawdown instead of capped.

But this is all drawdown in one form or another.

dunstonh

We have been multiple issued compliance warnings over fixed term annuities. Especially for people thinking that they are a way to allow them to get a higher lifetime annuity rate later.

Linton

I believe the total security of annuities is worth something despite the current low rates and so intend to ensure that a minimally acceptable existence is covered that way, index linked, together with State Pension.

mania112

Linton wrote: »

I believe the total security of annuities is worth something despite the current low rates and so intend to ensure that a minimally acceptable existence is covered that way, index linked, together with State Pension.

Right. And just because Gilt Index Yield is at the floor (well, one notch up @ 2.25% in Jan) doesn't mean that Annuities can't go down further:

1) Mortality is always increasing

2) Advances in medical science are causing fewer issues (connected obviously to the first point).

3) The 'floor' can still be lowered below 2%

If you are 55 and defer to 60, the chances are health will remain the same. There's no telling if your pot will be larger in 5 years, so the increase in age might not make a jot of difference, when considering this above.

dunstonh

Right. And just because Gilt Index Yield is at the floor (well, one notch up @ 2.25% in Jan) doesn't mean that Annuities can't go down further:

That is what the research/compliance bulletins have been saying. We may not have seen bottom.

You can add a declining mortality gain to your list as more people use unsecured pension income options, it reduces the mortality gain on the annuity.

Tancred

Gatser wrote: »

With Annuities being a total rip off (IMHO) is there any sign of a better alternative other than Drawdown.
What about fixed term annuities? are these a better alternative?

The best solution would be for the government to let people withdraw their entire pots tax-free. Then we could invest in anything we wanted (eg. property) to get a better return. Of course you always run a higher risk to get a better return, but there are ways of mitigating this.

dunstonh

The best solution would be for the government to let people withdraw their entire pots tax-free.

Dream on.

Then we could invest in anything we wanted (eg. property) to get a better return.

You can invest in almost anything you want except residential property. It would be a disaster to let people access their funds to do that sort of thing.

kidmugsy

Gatser wrote: »

With Annuities being a total rip off

Really? Who's ripping you off?

Thrugelmir

Gatser wrote: »

With Annuities being a total rip off (IMHO)

Returns elsewhere i.e. cash, bonds. equities are low as well. So annuities may well come back where they belong.