Buying an annuity at 74

littlerock

My father in law is coming up to 74 this month and has a couple of personal pensions he is now thinking of using to buy an annuity as the company he has them with, does not allow him to continue to defer the funds beyond age of 75.

He was looking on line for comparative rates but the comparison service he looked at specified birth dates no earlier than 1947 and he was born in 1944. He is in excellent health. Is there some arbitrary limit imposed on the age at which he can buy an annuity?

dunstonh

My father in law is coming up to 74 this month and has a couple of personal pensions he is now thinking of using to buy an annuity as the company he has them with, does not allow him to continue to defer the funds beyond age of 75.

Why not move them to a modern pension that complies with post 2015 rules and not one that is still enforcing pre 2015 rules?

He was looking on line for comparative rates but the comparison service he looked at specified birth dates no earlier than 1947 and he was born in 1944. He is in excellent health. Is there some arbitrary limit imposed on the age at which he can buy an annuity?

Comparison sites are not a good way to buy an annuity unless the amount is less than £25k. Plus, annuity rates on tables and comparisons tend to only be based on standard terms and not the enhanced terms that IFAs can get.

Annuities can be bought above age 74. Its just bad coding at the sites you are using or a restriction they have chosen to put in place.

westv

dunstonh wrote: »

Comparison sites are not a good way to buy an annuity unless the amount is less than £25k. Plus, annuity rates on tables and comparisons tend to only be based on standard terms and not the enhanced terms that IFAs can get.

If the OPs father in law is in excellent health then I doubt he'd get any enhanced terms.

kidmugsy

A good move would be to move them as dunstonh suggests. Then if annuities become better value he could buy one later. He'll get more for his money at 80, in all probability, and potentially much more of his health declines.

I suggest that he check whether, by any chance, the current pensions carry guaranteed annuity rates (GARs) - those can make an annuity good value.

dunstonh

westv wrote: »

If the OPs father in law is in excellent health then I doubt he'd get any enhanced terms.

You will be surprised what gets you an increase nowadays. Plus, there is still the haggle that some providers still do on the larger pots.

If it is in good health, then buying an annuity doesnt seem to be a good purchase if he doesnt need the money and there are no GARs.

FatherAbraham

kidmugsy wrote: »

A good move would be to move them as dunstonh suggests. Then if annuities become better value he could buy one later. He'll get more for his money at 80, in all probability, and potentially much more of his health declines.

He'd get less for his money, not more, from buying an annuity as he ages, thanks to mortality drag.

kidmugsy

FatherAbraham wrote: »

He'd get less for his money, not more, from buying an annuity as he ages, thanks to mortality drag.

The same capital sum would buy him a larger monthly annuity by virtue of his having a lower life expectancy by virtue of being older. (Unless some extraordinary events mean that 80 year olds will have a longer life expectancy than they had had five years earlier.)

He might get more if, by age 80, the world has escaped from ZIRP, QE, and all that, with a corresponding rise of gilt yields.

There's nothing to stop him buying one annuity at 75 and a second at 80 if he'd like to diversify the risk.

dunstonh

Mortality gain and drag are not what they used to be. The smaller market and the fact that most annuities are enhanced nowadays means the cross-subsidy is much reduced for the gain and underwritten out for the drag.

littlerock

thanks for the info

atush

Buying an annuity is one time that you would always be better off using an IFA, even after the fees.

So should he decide to do so, i'd look into finding a good one.

FatherAbraham

kidmugsy wrote: »

The same capital sum would buy him a larger monthly annuity by virtue of his having a lower life expectancy by virtue of being older. (Unless some extraordinary events mean that 80 year olds will have a longer life expectancy than they had had five years earlier.)

He might get more if, by age 80, the world has escaped from ZIRP, QE, and all that, with a corresponding rise of gilt yields.

There's nothing to stop him buying one annuity at 75 and a second at 80 if he'd like to diversify the risk.

Yes, the monthly income is higher, because the life expectancy is lower, and the annuitant has not received any of the monthly income payments paid to someone who bought the annuity six years earlier.

So far, so mathematical.

However, since someone who buys at 74 is taking the taking the risk that he or she did before reaching 80, ending the annuity, the payments to the younger annuitant will be higher than simple arithmetic taking into account the extra six years of payments would indicate.

If the person planned to take an annuity at 80 does between 74 and 80, then the annuity never gets purchased, and the capital sum passes to heirs - in other words, the pool of money to be distributed monthly to surviving annuitants is smaller than the pool available for those who buy at 74.

As ever, if one manages to outlive a good proportion of one's (actuarially) similar peers, an annuity looks great in retrospect. Figuratively, one dines on the estates of those who didn't survive. Still, they're dead, and don't really need the money.