Impact of change to Annuity Interest Rate

Howards

The above rate has decreased from 2.1% to 1.7% which seems to mean that the critical yield increases for DB transfers

Any help with below questions appreciated

Does this have any material/real impact on reasons for transfer ?

Appears to be a notional figure?

Is it likely that transfers will increase again going forward ?

Why has it increased?

Thanks

sandsy

The annuity interest rate drops as gilt yields fall. Effectively, this means it costs more to replicate the benefits of a DB scheme by purchasing an annuity.

On the other hand, as gilt yields fall, CETVs normally increase.

In an ideal world the two would offset each other. We don't live in an ideal world so the answer is, it depends on the relative movements of both elements as to whether the critical yield increases or not.

However, critical yield isn't the be all and end all of a pension transfer. A further element will always be the extent to which an individual can meet their basic needs and if this is best achieved via a guaranteed income or if they have the financial capability to be able to accept the risk and uncertainty associated with not having any guarantees.

Froglet

What will make the annuity rate start to climb again? it seems the worst possible time for me to turn my last pension scheme into an annuity.Meanwhile I am still paying into it,hoping that things will increase eventually.


I don't need the money now and I don't reach 65 until next year.But it is hard watching the value hardly changing.Should I be seeking advice from an ifa,or just keep paying until financial matters improve.

MEM62

Froglet wrote: »

What will make the annuity rate start to climb again? it seems the worst possible time for me to turn my last pension scheme into an annuity.Meanwhile I am still paying into it,hoping that things will increase eventually.

I don't need the money now and I don't reach 65 until next year.But it is hard watching the value hardly changing.Should I be seeking advice from an ifa,or just keep paying until financial matters improve.

Is an annuity the only option you are considering? If so, why?

Absolutely you should seek advice from and IFA. Particularly if you are approaching retirement age and have not reviewed your financial situation for some time or are not aware of other retirement options than an annuity.

PensionTech

I don't need the money now and I don't reach 65 until next year.But it is hard watching the value hardly changing.

But you shouldn't be expecting the value (i.e. the annual pension) to change, other than to keep pace with inflation. It's a promise to pay a certain amount from a certain age. It's not a reflection of the underlying investments.

The money isn't just sitting there fully-formed waiting for you to retire - the scheme relies on its own investments to fund the pension promises it's made, and when there isn't enough, it gets more money from the employer (which is happening to most schemes these days). You can't compare investment growth in a DC scheme to revaluation on a DB pension. They are in no way the same thing. And a CETV from a DB scheme will be discounted to reflect the expected investment return on the underlying assets so you would have to beat those (well, it's more complicated than that, but still) to benefit from transferring into a DC scheme. If all you're going to do is purchase an annuity, then leave it in the scheme - common sense says you'll lose out by trying to purchase an equivalent guaranteed pension from a third party because there are profit margins involved, plus you'll have to take on more investment risk in the meantime.

You really need a lot more info on the difference between DB and DC benefits, and how transfer values work.

Edit: I have just realised that the person I quoted above wasn't the same person as the OP and therefore wasn't necessarily talking about transferring from a DB pension in the first place... sorry!

Froglet

Thanks for the advice,both of you.I already have 2 quite small annuities paying out and will receive state pension in July.Currently I do not ,and will not,pay tax.I have just transferred the marriage allowance to my husband as he will be paying tax from April.

The pension is a private one with legal and general.Yes I will seek advice from an ifa as it is nigh on 40k.Just wondered if it is worth doing sooner rather than later.

PensionTech

No, my comment was completely useless to you as I thought you were the person originally asking about transferring out of DB - please ignore my rambling!

Howards

Agree with your comments Pens Tech don't think I have expressed myself well on this one

main question should be - Am currently doing transfer and requote was required as the CETV had increased so normally would expect reduced critical yield but because of changes above critical yield increased!!

Due to the changes will TV increase further so is it worth waiting?

brewerdave

Froglet wrote: »

Thanks for the advice,both of you.I already have 2 quite small annuities paying out and will receive state pension in July.Currently I do not ,and will not,pay tax.I have just transferred the marriage allowance to my husband as he will be paying tax from April.

The pension is a private one with legal and general.Yes I will seek advice from an ifa as it is nigh on 40k.Just wondered if it is worth doing sooner rather than later.

If its only worth ~ £40k you will struggle to get an IFA to look at it -my (limited) experience suggests that £100k is the minimum - I suspect that any IFA who will take it on, will charge you an arm and a leg !!

Froglet

brewerdave wrote: »

If its only worth ~ £40k you will struggle to get an IFA to look at it -my (limited) experience suggests that £100k is the minimum - I suspect that any IFA who will take it on, will charge you an arm and a leg !!

Thank you.This is exactly why I am trying to make some decisions without using one.The 2 I have coming in at the moment were certainly not worth paying for advice and I sorted it out myself,whereas hubby with a much larger pension pot did get an ifa involved.


I am paying in £100 a month which doesn't sound a lot but I don't work,and keep wondering if it's worth keeping on doing so.But if I stop there will be charges taken out with nothing going in any more.But to take it now,and certainly to only take portions of the fund,would involve a lot of research and whereas I would have enjoyed it once,as I get older I find it harder to understand all the rules that go with pensions.


The very low annuity rate is a worry .Where could I get good advice on my options without a heavy charge?

Froglet

Sorry to hijack your thread howards,it was simply that the drop in the annuity rate was the heading,and something I am concerned about.