Annuities - What Happens to Pension Pot?

cgzz

Just wondering - once someone hands over their pension pot to an annuity provider and the provider starts paying the annuitant, what does the provider do with the pension pot of money?

Your_Hero

The usual activities that insurance companies get up to when they have money (contrary to popular belief, not pool parties or other fun activities). They would need to invest it to meet their ongoing liabilities and generate profit.

RickyC_IFSWP

Typically the providers would purchase long-term income paying assets, such as gilts.

jamesd

Typically the money is used to buy a mixture of UK government bonds, other UK bonds and a range of other investments. Those are often arranged so that the maturity dates when the money will be repaid will match the profile of the income obligations being taken on at the time the annuity is sold.

cgzz

Thanks for the replies everyone.


8 months ago I started my annuity with just over £75000 (single life, level, 10 year guarantee). Through a CETV enquiry the transfer value is now just over £77,000. So the provider has paid me for 8 months and managed to increase the fund value. Is that normal or profiteering? That's only 8 months so imagine what it would be in 8 years and so on. Does this demonstrate a dubious annuity rate was given 8 months ago?

greenglide

But you have spent all the money in the fund to purchase an annuity so the pension "pot" no longer exists. It cannot have a transfer value any more.

If the money had remained invested then it probably would have grown during the last 8 months, however you used it to purchase a product that promises to give you a guaranteed income for life with a guarantee to pay out for 10 years even if you die. This product carries no investment risk (but it is a level annuity so it does carry a very real inflation risk).

You cannot compare the two. Did you get good value? No-one can say at this stage and "good value" depends on what you wanted in the first place - we do not know.

Your_Hero

cgzz wrote: »

Thanks for the replies everyone.

8 months ago I started my annuity with just over £75000 (single life, level, 10 year guarantee). Through a CETV enquiry the transfer value is now just over £77,000. So the provider has paid me for 8 months and managed to increase the fund value. Is that normal or profiteering? That's only 8 months so imagine what it would be in 8 years and so on. Does this demonstrate a dubious annuity rate was given 8 months ago?

I'd like to point out, in case you were not aware, that your "fund" does not belong to you anymore. You cannot transfer this out. You do have a guarantee for 10 years which means you annuity will continue payment for that period even if you die.

The CETV stands for cash equivalent transfer value. My understanding is that the figure you obtained means that in order to provide you with the same income and options, it will now cost £77,000. This could be because the long term rates (and therefore annuity rates) have fallen so it now costs more capital to secure the same payment.

This has got nothing to do with the fact that they have paid you for 8 months or dubious annuity rates. Why are you even looking into this? You've secured your pension, now enjoy your retirement

dunstonh

cgzz wrote: »

Thanks for the replies everyone.


8 months ago I started my annuity with just over £75000 (single life, level, 10 year guarantee). Through a CETV enquiry the transfer value is now just over £77,000. So the provider has paid me for 8 months and managed to increase the fund value. Is that normal or profiteering? That's only 8 months so imagine what it would be in 8 years and so on. Does this demonstrate a dubious annuity rate was given 8 months ago?

You dont have a fund value any more (unless you bought a hybrid product). A lifetime annuity/compulsory purchase annuity will not have a CETV.

What product do you have as the term "annuity" is not one product type but many? Who provided this so called CETV? Are you sure it is a transfer value and not an indication of the amounts required to provide you the same benefits as you have now?

System

I can't believe that anyone would buy an annuity without appreciating beforehand what it means, or what kind of annuity is being purchased.

jamesd

cgzz wrote: »

8 months ago I started my annuity with just over £75000 (single life, level, 10 year guarantee).

Not quite right. What you will have done 8 months ago in most cases was spend the £75,000 to buy the annuity. But there are a few products, called hybrid annuities, that don't fully spend the money and those do have a future capital value.

cgzz wrote: »

Through a CETV enquiry the transfer value is now just over £77,000.

A CETV does not tell you the capital value of an annuity. It tells you how much money it would take today to buy the same income. This is used mainly in divorce planning to work out how much value has to be divided between the people who are divorcing. But dunstonh noted, it's not normal to get quoted a CETV for a normal retirement annuity.

Before you purchased the annuity you would not have received a CETV but instead a fund value or pension pot value which was the actual value of the investments you owned. Now you no longer own the investments, just a right to the income of the annuity you spent their value on. Unless you have one of the uncommon hybrid annuity products.

cgzz wrote: »

So the provider has paid me for 8 months and managed to increase the fund value. Is that normal or profiteering?

They probably didn't increase the fund value. It just became more expensive to buy the amount of income that you are receiving. Unless you have a hybrid annuity.

cgzz wrote: »

That's only 8 months so imagine what it would be in 8 years and so on. Does this demonstrate a dubious annuity rate was given 8 months ago?

No. It demonstrates that you do not understand what you did 8 months ago. But we don't yet know enough to know just what you did either.

Just how did you come to buy this annuity? Did someone phone you up to sell you it or did you get advice in some other way? What is the exact name of the product you bought? The descriptions yore giving aren't consistent with what an annuity normally does and we really need to know more to be sure that we're giving you correct information.

dunstonh

cgzz has a track record of posting Incorrect and inaccurate information and then getting aggressive when challenged
https://forums.moneysavingexpert.com/discussion/4933007

Some of the other threads make interesting reading as well as people answering questions get ignored or when clarification is asked for, it never comes. Never any thanks either.