Am I missing something?

ceng

I have 10 years to go to retirement at 65. If through my contributions to the Company defined contribution pension scheme I have a pension pot of £100k that will get me an annuity of about £3k per year (very approx.) so I would have to live to 98 (very unlikely) to get my money back. If I'm lucky and live to 80 (likely based on family history) I will only get £45k back so the pension Company walk off with a cool £55k.
Am I missing something? If this is really the case why should I contribute to the pension scheme, I'd be better putting my contributions into a savings account.

ViolaLass

How much will you be contributing?

JoeCrystal

ceng wrote: »

Am I missing something? If this is really the case why should I contribute to the pension scheme, I'd be better putting my contributions into a savings account.

Any employer contribution and tax relief for a start.

Cheers,
Joe

zagfles

Rates are low because yields on gilts are low. But you don't have to buy an annuity - though obviously anything else carries a risk.

CLAPTON

ceng wrote: »

I have 10 years to go to retirement at 65. If through my contributions to the Company defined contribution pension scheme I have a pension pot of £100k that will get me an annuity of about £3k per year (very approx.) so I would have to live to 98 (very unlikely) to get my money back. If I'm lucky and live to 80 (likely based on family history) I will only get £45k back so the pension Company walk off with a cool £55k.
Am I missing something? If this is really the case why should I contribute to the pension scheme, I'd be better putting my contributions into a savings account.

3% at 65 would be an inflation linked annunity so you would receive a lot more

C_Mababejive

So dont buy an annuity. Take control of your own pension pot and investment strategy.

redbuzzard

Annuities are pretty close to being a swizz if not an actual one.

The boss and I are 64 & 60 respectively. I have just been obliged to buy an annuity with about £6200. A typical quote for a limited RPI joint life 50% spouse was about £126 A YEAR.

In the end I took level, 100% spouse pension, at £255 a year. None of our parents made it past 72.

I shall be doing drawdown on the SIPP.

It's the guarantee that's the problem of course. No insurer can afford to contemplate running out of money, by making a major forecasting error about mortality 20 years into the future.

I am surprised there hasn't been more creativity around this. I wonder to what extent the insurers do internal mortality swaps between life and annuity liabilities.

Mr_Proctalgia

@ redbuzzard. Your comments are sound, something ought to change. I have a small amount in drawdown it is at 3.75% GAD @ 120% and has paid me for the last 3 years, paid out the platform charges, is paying the phased initial fee and pays the drawdown charges too - My fund value has increased by 20.4 % over 3 years, however if I revalue it to todays or Augusts new figured I shall have to lower my income from it a little.

The situation is crazy - I intend to eventually run out of money, that is what dying is all about when you have no dependents, the income will eventually be moot as I have other final salary pensions coming on stream later but I am stymied by the rules from realising the value of my investment.
A new paradigm is need on realising pension incomes in these modern ages. I know that Flexible Drawdown is an option but how many will be able to benefit from it? Why can I not realise the investment gains from a good year and claim then down to the level of my initial investment, why can I not leave any losses from a bad year until my fund is back to its starting point. The "New State Pension" will provide a level of income for many in due course, this is a good safety net. For many the chance to eat the icing on the cake would be welcome, income tax not withstanding.

I am adverse to annuities, The rates are too low and the principle of Cross Subsidy smells of paying off anothers overdraft because you happen to have savings - Well sod that for a game of soldiers, I prefer to look after myself

Proxy

redbuzzard wrote: »

Annuities are pretty close to being a swizz if not an actual one.

The boss and I are 64 & 60 respectively. I have just been obliged to buy an annuity with about £6200. A typical quote for a limited RPI joint life 50% spouse was about £126 A YEAR.

In the end I took level, 100% spouse pension, at £255 a year. None of our parents made it past 72.

I shall be doing drawdown on the SIPP.

It's the guarantee that's the problem of course. No insurer can afford to contemplate running out of money, by making a major forecasting error about mortality 20 years into the future.

I am surprised there hasn't been more creativity around this. I wonder to what extent the insurers do internal mortality swaps between life and annuity liabilities.

What do you seriously expect for six grand? You're lucky to get what you've been offered.

Insurers do their best within the limitations they have. With all the rules on reserving and what assets they can use, there's absolutely no chance you'll be receiving excessive returns past what is essentially longevity insurance.

OldBeanz

I find it strange that people will state that they want to do their own thing but want to run out of money. Who picks up the bill when they run out of money or do they know when they will die? They want to take their money during good times then wait until it recovers if there is a slump.
The rules are relatively straightforward. Ensure you have a guaranteed annual income of £20k (which includes the SP which is the only part that has to be inflation proof) and you can do what you want with the rest through flexible drawdown. If you cannot provide that guarantee then you are bound by rules to ensure you do not run out of money and become a burden on the state.

FatherAbraham

redbuzzard wrote: »

Annuities are pretty close to being a swizz if not an actual one.

This is a common misconception.

People have been claiming that rates are low, and that there must be a swindle going on here, since actuarially-accurate annuities were invented.

Of course, all we're seeing with annuity rates is how expensive it is to provide (sometimes index-linked) safe income for life from a mutually-insuring pool, with a small deduction for insurer profits and expenses.

Many people simply can't believe how expensive it is, and that they can do better. OF course this is extremely unlikely -- they're usually underestimating the risk of exhausting the capital pool early by several orders of magnitude.

Even worse, once they do make proper contingency for early exhaustion (at least, to bring the risk down to only slightly above that of an annuity), they find that the income distributions they can take from their fund are far lower than they'd get from an annuity, because there's no mutual sharing of longevity risk.

Annuities are a great product. They let us entirely consume our capital as income in the safest, most efficient way. Beautiful.

Permanent income for life (a "pension") -- it's all about RISK.

Warmest regards,
FA