Quick calculation

jamesd

Yes, the annuity figures are what you get for life for each 100000 spent.

An annuity guarantee means that it will pay out for at least that many years after you buy it even if you die. So die after two years:

no guaranty stops
5 year guarantee pays for 3 more years
10 year guarantee pays for 8 more years.

murphydog999

Ok thanks James, getting there! So is my sum calculation right?

MK62

murphydog999 wrote: »

Ok thanks James, getting there! So is my sum calculation right?

The sum is correct, but you've used the figure for a 65 year old (£3971).
The figure for a 55 year old is £2617.

The figures in the table refer to somebody of that age today - it's not a projection of what you will get once you yourself turn that age (say 65 for instance).
If you are 54 today, then you can probably use the figures for a 55yo to get you in the ballpark - all the other figures are meaningless for you at this moment.

In terms of answering your original question, the only guaranteed way of getting a £16500pa income for life at the moment is to use your pot to buy an annuity. At today's rates, assuming you want some measure of inflation protection, that would require a pot of around £630k.
With no inflation protection, the pot required would be less, around £376k - though obviously the buying power of that £16500 would reduce over the years.

Remember though, at 67 your state pension will kick in, which, assuming you qualify for one, can vary the calculations quite a bit.

There are of course other methods to access your pot other than an annuity.
None of these are guaranteed however (there were some guaranteed drawdown products available, but I'm not sure if these are open to new business any more).
Flexi-access drawdown is the most obvious and popular.

How big your pot would need to be to generate a sustainable index-linked income of £16500pa, from flexi-access drawdown, is a difficult question to answer I'm afraid.
If things go your way in the investment asset markets, it could be as low as the £262k suggested above, maybe even lower. However, if things go the other way, it could be considerably more (exactly how much more is anyone's guess, but it could easily be double or more).
Personally I would hope for the former, but plan for the latter.

Also remember that your tax planning is an important factor too.

murphydog999

MK62 wrote: »

The sum is correct, but you've used the figure for a 65 year old (£3971).
The figure for a 55 year old is £2617.
That's ok, I just wanted to take a random figure and work it out for myself.

In terms of answering your original question, the only guaranteed way of getting a £16500pa income for life at the moment is to use your pot to buy an annuity. At today's rates, assuming you want some measure of inflation protection, that would require a pot of around £630k.

Unless it was a forces pension. I don't want to get into the reasons why this question has come up but a pot value has been given of £358,000 for that amount p.a. Which to everyone I have spoken to doesn't equate, but is close to your no inflation protection figure £376k. So the assumptions aren't necessary it is purely the figure that is required.

Paul_Herring

Hang on - are you trying to compare purchasing a DC pension with the figures given for a DB pension and expecting them to be similar?

murphydog999

DC & DB? Sorry, I am really not pension savvy.

MK62

murphydog999 wrote: »

Unless it was a forces pension. I don't want to get into the reasons why this question has come up but a pot value has been given of £358,000 for that amount p.a. Which to everyone I have spoken to doesn't equate, but is close to your no inflation protection figure £376k. So the assumptions aren't necessary it is purely the figure that is required.

People are making assumptions because without knowing the context of this valuation, it's impossible to tell you if it looks correct or not......a transfer valuation may be quite different to say an LTA valuation....

murphydog999

LTA valuation?? Please can it not be assumed that everyone knows what these abbreviations mean!

jamesd

MK62 wrote: »

If things go your way in the investment asset markets, it could be as low as the £262k suggested above, maybe even lower. However, if things go the other way, it could be considerably more (exactly how much more is anyone's guess, but it could easily be double or more).

That is with inflation increases and with investment performance so bad that only one in ten historic cases were worse. Even average investment performance would cause increases greater than inflation. The worst historic case wouldn't double the cost, it's more like a reduction from 5% to 4.5%.

jamesd

murphydog999 wrote: »

Unless it was a forces pension. I don't want to get into the reasons why this question has come up but a pot value has been given of £358,000 for that amount p.a. Which to everyone I have spoken to doesn't equate, but is close to your no inflation protection figure £376k. So the assumptions aren't necessary it is purely the figure that is required.

That isn't a very good transfer deal. If you do want 16500 for life plus whatever the state pension pays you, I suggest you leave it where it is.

If you'd use all of the money to buy annuities, transferring would be even worse.

Where transferring might be useful is if one or more of these apply:

1. you have a lower than usual life expectancy
2. you want the income before the pension will pay out
3. you want to get closer to the same income before and after the state pension starts
4. you want a probably higher but not guaranteed income (and your transfer value is so low that I don't think this one is good enough)
5. you want to leave more inheritance
6. you have some other sensible need for capital