Lifetime annuity vs fixed term annuity

Gramski

I’ll be 65 this year and am looking to start my pension. I have a £145000 pension pot with L&G but have been shopping around for a better quote. Presently, Canadalife appears to be coming out best.
I am trying to decide whether to go for a lifetime annuity or a fixed term annuity. As I have around 200k in fixed rate isa’s, my reasoning is that going for a fixed term annuity will give me a better income than a lifetime annuity. Also if I fix the term for 20 years, ie. age 85, this will give me a decent income for the remainder of my life. If I live longer, my intention is to draw on my isa savings.
I should add that I plan to take the full tax free lump sum and that my wife’s pension plan will keep her comfortable without me making provisions for her.
I would appreciate your views.

dunstonh

but have been shopping around for a better quote. Presently, Canadalife appears to be coming out best.

Are you using an IFA or just doing it yourself? IFA will usually beat you doing it yourself on that sort of fund value.

my reasoning is that going for a fixed term annuity will give me a better income than a lifetime annuity.

Depends on the options you take on with the fixed term annuity. if the maturity value is low, then the high income during initial term may not be reflected at maturity.

If I live longer, my intention is to draw on my isa savings.

If you can afford flexibility, why not consider drawdown. Or a combination?

System

If you take the lump sum you get considerably less a year. Personally if it were invested in stocks and shares I'd have been doing drawdown of £10k a year, the rises would keep the pot topped up should I live past 85.

xylophone

Have you obtained a new state pension statement to help with planning?

https://www.gov.uk/check-state-pension

Had you considered drawdown?

https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/income-drawdown/what-is-income-drawdown-apsqg6y8pg57

kidmugsy

If you die before 75 your wife can inherit your pension and withdraw money from it tax-free. So there's a case for your starting drawing down from your pension to use your Personal Allowance against income tax fully, but no more. Some of your tax-free lump sum would automatically be taken with that drawdown.

If you needed more income you should draw from your ISAs.

You should draw down any remaining tax-free lump sum when you reach 75. After that there's a case for putting all the remaining pension money into a lifetime annuity: index-linked or level, according to taste.

This strategy would keep your (joint) tax bills low, which would helpfully offset any stock market falls on the money kept for drawdown.

You should also consider contributing to a pension for yourself and also your wife, so that you might gain a lot if either of you dies before 75, and a little if neither does.

Added: it would be easy to modify this plan to incorporate a fixed term annuity if you'd like - running to age 75.

Linton

Gramski wrote: »

I’ll be 65 this year and am looking to start my pension. I have a £145000 pension pot with L&G but have been shopping around for a better quote. Presently, Canadalife appears to be coming out best.
I am trying to decide whether to go for a lifetime annuity or a fixed term annuity. As I have around 200k in fixed rate isa’s, my reasoning is that going for a fixed term annuity will give me a better income than a lifetime annuity. Also if I fix the term for 20 years, ie. age 85, this will give me a decent income for the remainder of my life. If I live longer, my intention is to draw on my isa savings.
I should add that I plan to take the full tax free lump sum and that my wife’s pension plan will keep her comfortable without me making provisions for her.
I would appreciate your views.

Surely it is far more sensible to do things the other way round. Draw down early on and then buy an annuity when you are older, should you survive til then, when annuities start to benefit from those dying early and you need insurance against living too long. This has the advantage that you are managing your investments yourself when you still have your marbles but dont need to when it all becomes too complicated.

Gramski

Hi. I have talked to an IFA but the quotes I’ve been getting are from theretirementdesk.co.uk,who say, " we don't look at any products which carry risk or charges, only guaranteed products." Either way, the quotes appear similar.
When you refer to drawdown, are referring to a drawdown within a fixed term annuity or drawdown with the pension still invested?

dunstonh

I have talked to an IFA but the quotes I’ve been getting are from theretirementdesk.co.uk,who say, " we don't look at any products which carry risk or charges, only guaranteed products."

That is SPIN talk to tell you that they are restricted to a limited range of options.

Either way, the quotes appear similar.

What was the commission on the quotes?
Were they before or after health considerations?

bostonerimus

The biggest selling point of a lifetime annuity is it's insurance component ie you are insuring for a long life and ensuring you always have an income until you die, you just have to live a good long time for it to pay off. You don't have that with a fixed term annuity or drawdown. I can see using a number or ladder of fixed term annuities in an effort to take advantage of rising interest rates and of course if you plan well there's a high probability that drawdown will get you more income and will easily last until you die and you'll have something left for your heirs too.

Remember that an optimum solution might include both an annuity and some drawdown.

Franz5

Hi Guys. I’ve been reading your comments and follow your opinions. I’m in a similar position and so far seem to favour the 15 year fixed term annuity as it removes any risk and has the dependent benefits included. My understanding is that I can go through an “agent” without any costs although I have had some discussions with FA’s who all seem to prefer Flexi Drawdown.
My preference is aimed at trying to get out as much as possible without incurring the ongoing costs associated to DD which seems to aimed at growth.
I also think it’s down to each personal circumstances, for example - is it very important that your fund must grow or is it a top-up. Similarly if you have other incomes which are inflation proofed then having a level escalation fixed term isn’t crucial.
The whole subject is interesting but can be rather confusing as at present I also read that annuity rates could go up or down depending on who you speak to.
Please add your comments as right now I tend to be swinging between DD and FTA’s.
Thanks

xylophone

Have you and your spouse (if any) obtained new state pension statements?

https://www.gov.uk/check-state-pension

Do you have

other incomes which are inflation proofed

(aside from state pension)?

Have you consulted an Independent Financial Adviser?