Is there really a difference on your pension between being a 20% or 40% taxpayer....

bigadaj

Well it's obviously not a tax, as politicians can raise it it and then claim they haven't increased taxes.

Moby_Tide

jamesd wrote: »

Sort of. After say 30 years of 3% inflation each Pound of a £6,000 a year annuity would only have the buying power of 41p at the start. The inflation-linked annuity would be paying out £2.43 for each Pound it initially paid out to keep up with that. So the £6,000 a year level annuity would only have the buying power of £2,470 but the inflation linked one would still have the buying power of £3,000. The £6,000 a year one would be paying £6,000 lower value Pounds and the inflation linked one would have raised its Pound payout to £7,290.

These quotes always make me feel nervous as it makes it sound very negative to take a level term annuity. If someone took an annuity and spent every penny every year it stacks up but if someone works on the theory that saving some of the excess in the early years it can stack up aswell. The break even figure of level and RPI annuities differs greatly I thought

jamesd

That's an interesting reaction. I think that in most cases it's more likely to discourage people from going for the inflation-linked annuity because of the lower starting payment.

I agree with you that the option to take the level annuity and invest some or all of the difference is entirely valid and I've sometimes suggested it myself.

The RPI annuity market suffers from the more limited competition in the smaller market (much fewer bought) so it's even less good value than the level one. But in both there's a big value loss at the time of purchase compared to income drawdown. Whether and how much of that is appropriate for an individual to get the guarantee part is the question and that answer can change as people get older.