Is 8.2% guaranteed annuity a good deal?

cash1948

My wife (age 60) has a pension with a guaranteed annuity of 8.2%. Our first thought was to take the 25% tax free and the guaranteed annuity, however a couple of years ago I transferred two pensions into a SIPP and have averaged an 11% return pa. I know we will have to pay a financial adviser to sign some form saying we have taken advice, before the pension provider will make the transfer. Should we go with the annuity or transfer to a SIPP and invest ourselves ? Any opinions appreciated.

Drp8713

I would say yes, it is a good deal.

How much is the fund?
What other guaranteed income does she have?
Is the annuity index linked?
Does it pay a death benefit either through a guarentee period or spouses pension?

11% returns from the stock market are above the long term average, so dont expect that every year, next year could be -40%. Although if I can get 11% i can retire at 45 so heres hoping.

cash1948

Hi Drp8713 - Fund is £63K, state pension at 66, no index lining and no death benefit. Payment is yearly in arrears.

Tom99

[FONT=Verdana, sans-serif]What multiplier of the 8.2% would you get as a transfer value. If its only x12 then it would seem better to keep the annuity.[/FONT]

LHW99

Would you have difficulty managing if she should pre-decease you, since there is no death benefit? If so, it could be a reason to consider transferrig.

cash1948

Tom99 wrote: »

[FONT=Verdana, sans-serif]What multiplier of the 8.2% would you get as a transfer value. If its only x12 then it would seem better to keep the annuity.[/FONT]

Not quite sure what you mean here, but the transfer value is 12.2 times the 8.2% annuity value.

tacpot12

The lack of index linking could be a problem if your wife needs all the annuity income for living expenses. Over time inflation will reduce the purchasing power of the income, but when the state pension kicks in, this will replace what has been lost over the last six years.

Whether the annuity rate is good value is something that might need you to review the market for comparable products..

dunstonh

however a couple of years ago I transferred two pensions into a SIPP and have averaged an 11% return pa.

In a period of growth that has suffered no major negatives. You wont get 11% return as an average.

Should we go with the annuity or transfer to a SIPP and invest ourselves ?

Secure income for life vs unsecured income based on investment returns with the potential for you not understanding investment volatility (only based on your comments that you have got 11% p.a. over two years and the suggestion you may think that is going to the norm.

What are all of the terms of the annuity (as you are missing some - e.g sole or inc spouse)?
What is the annuity rate of an indexed option?

What level of investment risk are you taking and can you afford that level of risk? (i.e. needing to reduce your income in a negative period for example).

Negative periods can take place over days or weeks or even months (such as the credit crunch) or take place over years (such as the three years at the start of the millennium).

What is your draw rate on the SIPP likely to be?

Tom99

cash1948 wrote: »

Not quite sure what you mean here, but the transfer value is 12.2 times the 8.2% annuity value.

[FONT=Verdana, sans-serif]Replacing a level single life annuity at age 60 would probably cost at least x20 so only getting x12.2 seems poor value unless there are other compelling reasons.[/FONT]

bostonerimus

What are the terms of the annuity? Is in Lifetime, single or joint, is it indexed. 8.2% is far better than you'd get for a single lifetime annuity on the open market. We need more details to give an opinion.

cash1948

bostonerimus wrote: »

What are the terms of the annuity? Is in Lifetime, single or joint, is it indexed. 8.2% is far better than you'd get for a single lifetime annuity on the open market. We need more details to give an opinion.

My wife is aged 60 (I'm 70) we would not be dependant on this income for normal living expenses - the fund is £63K, with a guaranteed annuity rate of 8.2%. The terms are single life, no index linking, no death benefits, payable annually in arrears.