Impact of change to Annuity Interest Rate

jamesd

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. ...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.

Pretty easy. State pension deferral will pay you increased state pension of 5.8% for every year you defer. Increasing with inflation. Unless you have quite serious medical conditions an annuity will not come close to that.

You should check that there isn't a guaranteed annuity rate. Those can be high enough to buy.

Otherwise the sensible thing to do is:
1. Transfer to some place like Hargreaves Lansdown that has a decent drawdown plan.
2. Take the 25% tax free lump sum.
3. Take taxable drawdown income that is the same as your state pension would be.
4. Claim your state pension a few months before you have been paid the last of your pension pot money.

jamesd

Howards wrote: »

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?

Why does the annuity rate matter to you? Normally a person of your age should not consider buying a standard annuity unless the value of the transferred pension pot is at least five times what their state pension would be and quite often more like ten times.

The reason for this is simple: at 5.8% increase per year of deferral, increasing with CPI inflation for life, the annuity is hopelessly uncompetitive compared to deferring your state pension and paying yourself the same income using drawdown.

If an IFA was to advise against transferring on the grounds that you couldn't buy enough annuity when you could buy enough state pension through deferring you'd need an IFA who'd do a proper job instead.

However, if the transfer value is much larger, more thought would be needed.

There is a critical yield calculation which includes an annuity buying assumption but that's patently ludicrous when deferral will be used.

Howards

Hi jamesd there has been a little confusion on this thread please see my post number 8
Thanks

PS No worries froglet

Froglet

jamesd wrote: »

Pretty easy. State pension deferral will pay you increased state pension of 5.8% for every year you defer. Increasing with inflation. Unless you have quite serious medical conditions an annuity will not come close to that.

You should check that there isn't a guaranteed annuity rate. Those can be high enough to buy.

Otherwise the sensible thing to do is:
1. Transfer to some place like Hargreaves Lansdown that has a decent drawdown plan.
2. Take the 25% tax free lump sum.
3. Take taxable drawdown income that is the same as your state pension would be.
4. Claim your state pension a few months before you have been paid the last of your pension pot money.

Thanks James,some good advice there.I have a few months to decide on deferral.Depends on our income when hubby starts taking his.

If I transferred to Hargreaves Landsdown would I need ifa advice or is it something I could arrange myself?

jamesd

Howards wrote: »

Hi jamesd there has been a little confusion on this thread please see my post number 8

I noticed and replied to each of you. The CETV probably won't increase much more, the critical yield effect depends on how long to go until retirement and whether an annuity will be bought. If you're close to state pension age and will defer your state pension instead it should make little difference. Effect on other reasons depends on what those other reasons are.

jamesd

Froglet wrote: »

Thanks James,some good advice there.I have a few months to decide on deferral.Depends on our income when hubby starts taking his.

If I transferred to Hargreaves Landsdown would I need ifa advice or is it something I could arrange myself?

Since yours is a defined contribution pension you would normally not need advice.