Pension now/pension later??

littlebigjon

My wife is wondering whether to take a modest pension from Sun Life by buying an annuity when she turns 60 in November, or continue paying the same premium for another 5 years and then buying an annuity which would hopefully pay out more at that time.
She doesn't need the money at the moment but, having done some calculations my head finds it hard to justify continuing with premiums, although my heart wants to continue investing.

At present her pot is £15k and a guaranteed annuity will pay £1113 per annum from November. She has paid £25/month for 20+ years.
If she continues paying for 5 years and the pot grows to say £18k, at todays rates she would get £1520 per annum.
If she takes it at 60 she will be about £7k ([25x60 months]+[1113x5]) better off when she turns 65 than she would have been had she continued with the premiums till 65.
So it will take about 17 years to recoup that through the increase in pension payments if she waits till 65. £7k/(1520-1113)
What's the point?

JoeCrystal

Would she still get guaranteed annuity at 65 or only at 60? The reason I am asking is because the annuity rate is pretty dire. To get single life, level, no guarantee annuity at 60 requires a pension fund of over £23,000. Waiting until 65 could be very expensive instead,

littlebigjon

She's yet to ask how waiting until 65 might affect the guaranteed rate. This is our first venture into considering what to do with any of our pension pots although i'm only 51 and have a bit to go yet.
She also has a Virgin pension with £75k in at present that she will definitely continue paying £300/month into until 65. Perhaps she would be better transferring the Sun Life £15k into that?

bigfreddiel

BREXIT has knocked the annuity market good luck fj

atush

littlebigjon wrote: »

She's yet to ask how waiting until 65 might affect the guaranteed rate. This is our first venture into considering what to do with any of our pension pots although i'm only 51 and have a bit to go yet.
She also has a Virgin pension with £75k in at present that she will definitely continue paying £300/month into until 65. Perhaps she would be better transferring the Sun Life £15k into that?

Yo say you have 'yet to ask' but really, you need to ask all questions before trying to ascertain the best way to g

And if she doenst want an annuity, does shen still need to pay premiums? Surely she could stop? though, if you decide the GAR is the way to go, and can continue paying in, that could be the way to go.

kidmugsy

It might be a good way to diversify, taking the GAR at 60 but carrying on contributing to the Virgin pension with the expectation that it will eventually provide some sort of protection from inflation.

If you believe that the GAR applies at 60 you really must check the terms: sometimes they are as specific as saying that you must start the annuity on a particular date e.g. her 60th birthday.

GunJack

1113p.a. on 15k is about 7.5%, is that really so bad? I thought "typical" rates were around 2.5% from other threads on here, or have I mis-read something?

Malthusian

littlebigjon wrote: »

What's the point?

The point is your wife might tragically die early and save the insurance company a lot of money.

The point for you - well, your wife would expect to live a further 25 years on average (longer if she is fit and healthy) so in pound terms she would expect to be better off waiting. But most people derive more enjoyment from income earlier in their retirement. So while some would say she should wait (probably while using the dreaded words "care costs") my instinct would be to take it at 60.

If you don't need the money and your heart wants to continue investing then you could always invest the annuity payments into an ISA or the Virgin plan.

She almost certainly should not transfer the Sun Life plan elsewhere as you are unlikely to get a guaranteed risk-free 7.4% per annum for life anywhere else any time soon.

bigfreddiel wrote:

BREXIT has knocked the annuity market good luck fj

She has a guaranteed annuity rate so Brexit has no impact on her annuity rate whatsoever. Isn't posting 300 pointless threads about Brexit enough without giving misinformation to people looking for help as well?

xylophone

She could take the income at 60 and pay it into a SIPP with HL - she might choose simply to leave it in cash (regarding the tax relief as an interest payment) and do with it as she wishes when she gives up work?

Or open a high interest current account or two and save the money in those?

littlebigjon

kidmugsy wrote: »

It might be a good way to diversify, taking the GAR at 60 but carrying on contributing to the Virgin pension with the expectation that it will eventually provide some sort of protection from inflation.

If you believe that the GAR applies at 60 you really must check the terms: sometimes they are as specific as saying that you must start the annuity on a particular date e.g. her 60th birthday.

Yes the GAR applies at 60, and she has 29 days after her 60th birthday to claim it.

littlebigjon

GunJack wrote: »

1113p.a. on 15k is about 7.5%, is that really so bad? I thought "typical" rates were around 2.5% from other threads on here, or have I mis-read something?

That's what i thought. The amounts are [relatively] small but it seems like a reasonable deal as annuities go. SunLife don't provide annuities, but they partner with Legal and General and that's what you get.