Annuity to begin at 80 or 85 only

Teaandscones

I wonder if a potential option could be for someone of 60-65 retiring under the new regime could allocate a small percentage of their pot to buy an annuity that would only start paying once they reach a ripe old age of for example 85. This would provide security against living too long but also psychologically reassure people worried about spending the rest of their capital because if they lived to extreme old age, the annuity would kick in.

I don't know whether any such products exist or what they would cost, but they could have their place in the new order.

kidmugsy

Teaandscones wrote: »

I don't know whether any such products exist...

I've come across the expression "deferred annuity" so they must have existed at some time.

dhs87

I am aware that you can buy a fixed-term annuity. Think of it like a fixed-term savings account. You can get a monthly income from it, but at the same time, the pension can appreciate in value until the end of the fixed-term.

This is what I have been told a lot of annuity companies are telling IFAs at the moment, to carry their customers over until the new reforms come in to play.

Of course, pension investments can go up as well as down, so it is still a risk.

bmm78

Most Fixed Term Annuities are set up with a Guaranteed Maturity Value at the end of the term, and therefore not subject to investment risk.

They are set up under drawdown rules and subject to the same (current) limits on income.

They will probably have a bigger role to play in the brave new world, but may be subject to a revamp to make them a bit more flexible in income levels and the plan term. There certainly appears to be a bigger niche for a simplified but flexible (with a small 'f') drawdown product.

kidmugsy

Ha! Here's an American writing about your idea, under the unfortunate name of "longevity annuity". What he has to say is interesting though.
http://corpstage.financialengines.com/employer/FE-LongevityAnnuity-FAJ-08.pdf

Teaandscones

kidmugsy wrote: »

Ha! Here's an American writing about your idea, under the unfortunate name of "longevity annuity". What he has to say is interesting though.
http://corpstage.financialengines.com/employer/FE-LongevityAnnuity-FAJ-08.pdf

That is interesting and what I was thinking about. It seems that our American cousins are ahead of us in this respect. Under the new regime the greater risk is not that people who have saved diligently will blow all their funds on a flash motor, but more likely will not spend enough for fear of running out of money. If you could spend between 5-10% of a pot as longevity insurance, then it makes it makes it much less worrying about depleting the capital of the other 90-95%.

kidmugsy

Teaandscones wrote: »

. It seems that our American cousins are ahead of us in this respect.

As I said above, I'd heard of the idea in the UK before. The problem of making a profitable business of selling such annuities in Britain would probably be that many people would expect just to throw themselves on one dole or another at 85 if they've run out of money. It would be a bit like selling insurance against "care" costs: companies tried but they couldn't find enough customers. People took the view that the council will pay.