Any experience or views of ‘Just’ (was ‘Just Retirement’) as an annuity provider?

Malthusian

jsinc said:

Apologies for hijacking the thread OP, but this seemed a sensible place to ask.

With Government proposing to align the RPI with CPIH around 2025-2030, are providers yet offering annuities linked to CPI or CPIH?

I haven't looked at this closely, but my understanding is that RPI will be abolished from 2030, so if for some reason you are buying an "RPI" linked annuity, you know that you will get RPI increases until 2030 and CPI thereafter. This will be priced in to the rate offered.

Has your mother worked out how long she would need to live before the total income received (not the annual payment) from an RPI linked annuity outpaced a level one, assuming 2 - 2.5% increases?

jsinc

Malthusian said:

I haven't looked at this closely, but my understanding is that RPI will be abolished from 2030, so if for some reason you are buying an "RPI" linked annuity, you know that you will get RPI increases until 2030 and CPI thereafter. This will be priced in to the rate offered.

Has your mother worked out how long she would need to live before the total income received (not the annual payment) from an RPI linked annuity outpaced a level one, assuming 2 - 2.5% increases?

I'm not convinced it will be priced in until much closer to the transition date, which means buyers between now and e.g. transition minus X years may get stuffed. I've found nothing to suggest already built into prices, or retrospective compensation proposed (but that may be wrong).

I understand your point about income, but this isn't about absolute optimisation. More about her peace of mind via meeting an essentials real-income floor from small NHS pension + State pension + inflation linked annuity. Income above that will be from DC drawdown, ISA, downsizing, perhaps even level annuities etc. There's enough of a cushion that if inflation-linked proves less valuable in retrospect then she'll never know, and it won't matter.

jamesd

chris1 said:

Malthusian said:

 Almost nobody buys RPI-linked private annuities.

Why is that please?

jsinc said:

(I ask because my mum wants to purchase an inflation linked annuity in the next couple of years, age around 70).

In addition to dunstonh's excellent answers, there's also the option of deferring claiming the state pension. You can start to defer once even if you've already claimed. The benefit differs based on when an individual reached their state pension age:

1. For reaching state pension age from 6 April 2016 onwards the increase is 5.8% per year of deferring pro-rated for parts of a year and the increase isn't inheritable.
2. Prior to that the increase is 10.4% per year of deferring and the increase can be inherited by a spouse or legal partner after first death.

In both cases the amount increases with CPI and the usual triple lock increases are applied for the deferring times before the addition is calculated.

What these levels of increase mean is that it's typically cheaper to buy extra guaranteed and inflation-protected income around state pension age by deferring claiming the state pension than by buying an annuity, provided the amount needed can be purchased in a viable time, since you can only spend your state pension value each year by deferring if you increase that way.

jsinc, it seems possible that your mother could get increases of 10.4% per year and that may still beat annuity rates. Worth checking both ways in case lifestyle and health factors do turn out to make annuity cheaper or better.

jsinc

jamesd said:

In addition to dunstonh's excellent answers, there's also the option of deferring claiming the state pension. You can start to defer once even if you've already claimed. The benefit differs based on when an individual reached their state pension age:

1. For reaching state pension age from 6 April 2016 onwards the increase is 5.8% per year of deferring pro-rated for parts of a year and the increase isn't inheritable.
2. Prior to that the increase is 10.4% per year of deferring and the increase can be inherited by a spouse or legal partner after first death.

In both cases the amount increases with CPI and the usual triple lock increases are applied for the deferring times before the addition is calculated.

What these levels of increase mean is that it's typically cheaper to buy extra guaranteed and inflation-protected income around state pension age by deferring claiming the state pension than by buying an annuity, provided the amount needed can be purchased in a viable time, since you can only spend your state pension value each year by deferring if you increase that way.

jsinc, it seems possible that your mother could get increases of 10.4% per year and that may still beat annuity rates. Worth checking both ways in case lifestyle and health factors do turn out to make annuity cheaper or better.

Thanks. It's 5.8% and she already deferred the State Pension for 2.5 years. I modelled her situation to find the optimal expected benefit over lifetime using updated ONS life expectancy and survival probability stats, using the (Dagpunar) methodology here:

https://rss.onlinelibrary.wiley.com/doi/full/10.1111/j.1740-9713.2015.00814.x

Although life expectancy is unknown, most women in her family have lived into their 90s, so she opted for deferral period between optimal for average life expectancy (2 years) and optimal for average +4 years (3-4 years).

We understand that's still not necessarily optimal from perspective of balancing all investment/income choices, esp State Pension deferral vs Annuity, but proved a reasonable choice given her particular work/income needs and wants.

jamesd

Absent health and lifestyle issues it still looks as though she'd get more income per Pound spent from additional state pension deferral.

To compare the costs vs annuity purchased today, the loss (cost) of deferring is the state pension and annuity income foregone while deferring and the benefit is the 5.8% increase plus or minus any differences in inflation protection.

There's no one optimal period of deferring because it depends on the other uses to which the money will be put. Someone using a current account would be better off deferring for less MORE time than someone making investments.

jsinc

You're right that she probably would. I give input into her options but it's not my life and there's only so much I can say before getting too confusing or annoying. Imo pension choices are ridiculously complicated given the unknowns.

I haven't been able to find any info on CPI-linked annuity quotes for comparison to RPI- so guess it's a wait and see on the RPI vs CPI(H) issue later, via an IFA. But I don't want her losing out on that.