Making the best of a bad situation..(Pension/Right To Buy)

domjon1

Malthusian wrote: »

If they buy a single life annuity then it will nearly halve the income she will receive as a widow. As things stand she won't get any Pension Credit whether the annuity dies with him or not. Perhaps it would affect Housing Benefit, but even then I can't see the benefit of buying a single life annuity. The extra income while he is alive will disappear unnoticed. And it doesn't sound like she can just shrug off the loss of not just his State Pension but the annuity as well.

Hmmm. My thinking was along the lines of a Single Life Annuity, guaranteed for 10 or 20 years...by which time the effect of inflation would have reduced the significance of the annuity as a proportion of her total income.

Some ball park figures from the moneyadviceservice annuity tool:

Joint Annuity, No Lump Sum.....£155 pm
Single Life, No Lump Sum, 10y guarantee.....£189 pm
Single Life, No Lump Sum, 20y guarantee....£176 pm

Joint Annuity, 25% Lump sum......£114 pm
Single Life, 25% Lump sum,10y guarantee.....£139 pm
Single Life, 25% Lump sum, 20y guarantee....£130 pm

Malthusian

Inflation of 2.5% over 20 years would reduce the real value of the annuity by 40%. 60% of half your income is still a lot to lose. Inflation means that her annuity will buy her slightly less as time goes on, it isn't going to whittle it away to nothing.

The purpose of a guarantee period is to reduce the risk of "buyer's regret", not to provide for widows.

A woman aged 61 will on average live another 25 years (and remember that's the average).

Notwithstanding what I said about people needing less money as they get older, 81 is the point at which she could least afford to suddenly lose a large chunk of her income. (A gradual reduction in the real value of part of your income is one thing, a sudden loss of 1/2 - 1/3rd of your total income is another.)

Bearing in mind that there's no reason to believe that losing the widow's pension will suddenly entitle her to means-tested benefits, how would she cope with the loss of what might then be a third of her income at age 81? Turn the heating off? Never spend it in the first place?

atush

the son is in no position to help and my OH is tied up (along with me) heavily overpaying our mortgage.

You need to look at your own finances too- this tends to be an unwise option, esp at todays rates and esp if you are neglecting a proper pension contribution to do it?

domjon1

Malthusian wrote: »

Inflation of 2.5% over 20 years would reduce the real value of the annuity by 40%. 60% of half your income is still a lot to lose. Inflation means that her annuity will buy her slightly less as time goes on, it isn't going to whittle it away to nothing.

The purpose of a guarantee period is to reduce the risk of "buyer's regret", not to provide for widows.

A woman aged 61 will on average live another 25 years (and remember that's the average).

Notwithstanding what I said about people needing less money as they get older, 81 is the point at which she could least afford to suddenly lose a large chunk of her income. (A gradual reduction in the real value of part of your income is one thing, a sudden loss of 1/2 - 1/3rd of your total income is another.)

Bearing in mind that there's no reason to believe that losing the widow's pension will suddenly entitle her to means-tested benefits, how would she cope with the loss of what might then be a third of her income at age 81? Turn the heating off? Never spend it in the first place?

Thanks for the input.

Earlier in the thread though I mentioned she will be eligible for a £159 pw pension of her own in 5 years time which is why I'm not considering the annuity as "half" her income.

Back of a fag packet reckoning in 20 years it would probably be less than 10% of her income. I take your salient point though about being least able to afford to lose income at an advanced age... but there is a trade off to be considered unless I'm mistaken....

A 15% increase in annuity payments now when they're about to experience a sudden drop in income and both fit and active vs a 10% drop in total income when she's 80 if she lives that long and he doesn't.

Bloody hard to make a reasonable judgement call when we're talking such trivial sums really isn't it. Anyway its their call, I'll just outline the options.

domjon1

atush wrote: »

You need to look at your own finances too- this tends to be an unwise option, esp at todays rates and esp if you are neglecting a proper pension contribution to do it?

Perhaps in pure terms of efficiency I could organise slightly differently however what price peace of mind and clarity of purpose?

I've no great ambitions for amassing wealth tbh but I do value security and getting the mortgage millstone from around my neck within the next 4 years is the first part of the plan. Got back on the ladder with a 30 year mortgage at the age of 32 and that will see it paid off at 46. I'm not skinting myself to do it btw, no kids, both of us working full time so we still treat ourselves to decent holidays/lifestyle etc.

We do both contribute the maximum permitted to company pension schemes btw, started waaay too late personally mind.

Mrs_Z

Sorry, no comments on the situation as such but does your father in law actually has the Right to Buy as you mention him paying rent to housing association? Housing Association properties are not usually eligible for right to buy.

Nitram29

I encountered the same conundrum with my parents a few years back. They have been council tenants all their lives and after they retired they asked me if I could look into the right to buy for them.

When I sat them down and went through it all of the pros and cons it became clear they just were not of the mindset to cope with owning a home. Even if I bought it for them (which I could not afford to) it was obvious when the first big bill came up for repairs they'd say "I never had big bills like this when I was with the council" and end up resenting me for telling them buying the house was a good idea.

Never mind the obvious logic that rent was 300 or 400 and is now zero, they only see that they need to pay a grand for a new boiler or roof repairs. What was rent would become engulfed in day to day spending and I love my parents too much to inflict the life and mindset changes that buying their house would place on them.

Don't get me wrong I am not saying they are dumb in any way, it's about what you value and them owning their house is like trying to convince me to spend a thousand pounds on a mobile phone. For some its right and others it is not, pure financial advantage is sometimes not enough on its own, peace of mind and contentment has to balance it.

Sometimes just because you can does not mean you should.

domjon1

Nitram29 wrote: »

I encountered the same conundrum with my parents a few years back. They have been council tenants all their lives and after they retired they asked me if I could look into the right to buy for them.

When I sat them down and went through it all of the pros and cons it became clear they just were not of the mindset to cope with owning a home. Even if I bought it for them (which I could not afford to) it was obvious when the first big bill came up for repairs they'd say "I never had big bills like this when I was with the council" and end up resenting me for telling them buying the house was a good idea.

Never mind the obvious logic that rent was 300 or 400 and is now zero, they only see that they need to pay a grand for a new boiler or roof repairs. What was rent would become engulfed in day to day spending and I love my parents too much to inflict the life and mindset changes that buying their house would place on them.

Don't get me wrong I am not saying they are dumb in any way, it's about what you value and them owning their house is like trying to convince me to spend a thousand pounds on a mobile phone. For some its right and others it is not, pure financial advantage is sometimes not enough on its own, peace of mind and contentment has to balance it.

Sometimes just because you can does not mean you should.

Thanks, an apt reply. Yeah it's the conclusion I'm sadly coming to...as I say even worse when it isn't your own parents.

domjon1

Mrs_Z wrote: »

Sorry, no comments on the situation as such but does your father in law actually has the Right to Buy as you mention him paying rent to housing association? Housing Association properties are not usually eligible for right to buy.

Yeah almost certainly...preserved RTB as they were transferred from the council books to the housing association when it was contracted out.

I'm virtually certain in fact because the MIL's mother and father ended up buying their first home at the ripe old age of 80 odd from the same HA via RTB when the bedroom tax first kicked off. Their other son handled that for them and presumably would have backstopped any repair bills etc so the circumstances aren't quite the same.

Malthusian

domjon1 wrote: »

Thanks for the input.

Earlier in the thread though I mentioned she will be eligible for a £159 pw pension of her own in 5 years time which is why I'm not considering the annuity as "half" her income.

Back of a fag packet reckoning in 20 years it would probably be less than 10% of her income.

154 / (154 + 159) = 49% = roughly half her income. If the real value of the £154 joint annuity is reduced by 2.5%pa over 20 years, then it becomes 92 / (92 + 159) = 36% = just over one third of her income. What am I missing?

I assumed the £159pw was her State Pension but is there another source of income?