Transferring out of a defined benefit pension to an annuity. Getting charged £13000!

bostonerimus

Jerry_Mander said:

bostonerimus said:

If you are risk averse and you are being offered a generous CETV why not buy a flat lifetime annuity for longevity insurance to give you a good foundation along with SP and invest the rest. With rates so low I see no reason to annuitize more than you need for income just to invest what you don't spend.

What's SP, my mind has blanked? Edit: Oh, state pension! Duh!

And if you can point me to a provider that does lifetime level payment annuities please do because I couldn't find any. 25 years max for the ones I can find. Bear in mind I am not interested in drawdown as I consider that too risky. I just want guaranteed income at a level rate.

Also, bear in mind that the state pension is in itself much more than I need to live on.

I'm not familiar with the UK annuity market, but I find it hard to imagine that you can't find a lifetime annuity as that's the standard product. I believe that you should annuitize for life as that's where an annuity (and a DB pension ) shines, if you have a flat annuity for 25 years then you might as well just put the money in a 5 year saving account ladder and with that your heirs will get money if you die early. If the SP is enough for you to live on then I see no point in the annuity at all, certainly not such a large one. If I was an IFA I would not endorse what you are proposing so (for once) I'm on their side here.

dunstonh

The IFAs told me they should be able to find me a much better deal than anything I can get directly on the internet.

That is normally the case.  Especially with larger values as IFA fees tend to cap out with decency cap and are arranged commission free.  Whereas online ones factor in commission at a commission rate similar or higher than an IFA fee and without a cap.

Decency caps on charges are considered best practice for adviser firms.  Although that doesn't mean all adviser firms follow best practice.

More debt! That's the last thing I want.

Actually, it may well be the best option and it won't matter that its debt with equity release.   You would expect an IFA to consider that in their advice.  As you said, you are single with no dependents.   So, the debt would die with you and it wont cost you anything monthly.

Jerry_Mander

bostonerimus said:

I'm not familiar with the UK annuity market, but I find it hard to imagine that you can't find a lifetime annuity as that's the standard product.

Yes you're quite right. My mind is spinning thinking about all the variations of annuity available and I'd discounted the lifetime version quite a while ago so basically forgot about it. But, the lifetime annuity is at least £1000 a year less than a fixed term 25 year annuity. And I really don't see me making it much past 85 which is where the 25 year annuity puts me. Also I will have mitigated for the sudden stop of the annuity income after 25 years, not least of all because I can live happily on the state pension which never stops (hopefully!) and is inflation protected.

hyubh

Jerry_Mander said:

So i get £16.2K level and I can live quite happily on £6k a year (yes, really, I can!). So all the rest can be saved, or invested, to inflation protect it at minimal risk.

What exactly are the increases on the DB pension being given up...? I'll be honest, exchanging guaranteed index linking for a higher level payment that you then partly invest to offset potential inflation does not, in itself, sound the canonical definition of taking the lower risk option. But then if (say) a significant part of the DB pension is pre-88 GMP that just gets statutory increases (i.e. nil), I could more understand your position...

dunstonh

I'm not familiar with the UK annuity market, but I find it hard to imagine that you can't find a lifetime annuity as that's the standard product.

Lifetime annuity is the standard.  Fixed term annuities are niche.

 I really don't see me making it much past 85 which is where the 25 year annuity puts me. 

People do generally underestimate life expectancy.  Unless you have an underlying health condition, around half will make age 94.  if you do have an underlying health issue, then there is a good chance its more likely that an enhanced annuity would be better than a 25 year fixed term annuity.

Jerry_Mander

hyubh said:

What exactly are the increases on the DB pension being given up...? I'll be honest, exchanging guaranteed index linking for a higher level payment that you then partly invest to offset potential inflation does not, in itself, sound the canonical definition of taking the lower risk option. But then if (say) a significant part of the DB pension is pre-88 GMP that just gets statutory increases (i.e. nil), I could more understand your position...

If I just take the company pension as is it'll be about £11k a year rising with inflation. But there are so many variables and imponderables, like how long will I actually live, that I'd need to show you my spreadsheet to demonstrate that for me a level payment of around £16k along with £100k tax free is probably the best option. And my driver is that i want that £100k tax free up front to buy a detached house. Other than going into debt with a new mortgage there's no way I can do that instantly by taking the company pension.
And everyone seems to be of the mind that i really should go for lifetime annuity but what about if I die in two, five or ten years? At least I'll have had the £100k up front and enjoyed a few years in my new detached house.

dunstonh

And everyone seems to be of the mind that i really should go for lifetime annuity but what about if I die in two, five or ten years? 

You wont care as you will be dead.   

bostonerimus

Jerry_Mander said:

hyubh said:

What exactly are the increases on the DB pension being given up...? I'll be honest, exchanging guaranteed index linking for a higher level payment that you then partly invest to offset potential inflation does not, in itself, sound the canonical definition of taking the lower risk option. But then if (say) a significant part of the DB pension is pre-88 GMP that just gets statutory increases (i.e. nil), I could more understand your position...

If I just take the company pension as is it'll be about £11k a year rising with inflation. But there are so many variables and imponderables, like how long will I actually live, that I'd need to show you my spreadsheet to demonstrate that for me a level payment of around £16k along with £100k tax free is probably the best option. And my driver is that i want that £100k tax free up front to buy a detached house. Other than going into debt with a new mortgage there's no way I can do that instantly by taking the company pension.
And everyone seems to be of the mind that i really should go for lifetime annuity but what about if I die in two, five or ten years? At least I'll have had the £100k up front and enjoyed a few years in my new detached house.

I think you really need to listen to your IFAs here.

1) Nothing wrong with taking the CETV if it's generous.
2) As you can live on just SP you have lots of options and should probably not put everything into an annuity...whatever the duration.
3) You can use the 100k for the house.
4) Use a portion of what's left to buy a lifetime annuity that will give you solid guaranteed income along with SP until you die.
5) Put the rest in a combination of safe things like Premium Bonds or a saving account ladder and dividend/income equity funds and use the natural yield to supplement the guaranteed income.

This will leave money to your heirs should you die early, give you solid lifetime income and access to capital for emergencies. As you can live on SP you really don't need an annuity.

hyubh

Jerry_Mander said:

hyubh said:

What exactly are the increases on the DB pension being given up...? I'll be honest, exchanging guaranteed index linking for a higher level payment that you then partly invest to offset potential inflation does not, in itself, sound the canonical definition of taking the lower risk option. But then if (say) a significant part of the DB pension is pre-88 GMP that just gets statutory increases (i.e. nil), I could more understand your position...

If I just take the company pension as is it'll be about £11k a year rising with inflation.

Do you mean, the pension will get uncapped CPI on everything...? Unless it's a public sector pension (or a big private sector one that adopts a public sector style) that's unlikely. But either way, it's pretty important to know what exactly is the inflation proofing you'd be giving up...

xylophone

what about if I die in two, five or ten years? 

You won't have had long in the detached house?