Annuity rates

Trevor108

Hi, has anybody out there commuted some or all of their SIPP into an annuity recently? I'd heard a while ago that the annuity rates aren't great but I'd be interested to know if this has changed and whether you felt converting to an annuity was worthwhile (although I accept that we all have different needs and expectations). If not, does anyone know of an online portal where it's possible to get an idea of annuity rates with different providers? Any help you can give would be appreciated. 

NedS

https://www.hl.co.uk/retirement/annuities/best-buy-rates

OldMusicGuy

This is helpful: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities

The IFAs on here will say that you get the best rates from going to an IFA , but the above sites will give you an idea. 

Albermarle

I'd heard a while ago that the annuity rates aren't great but I'd be interested to know if this has changed and whether you felt converting to an annuity was worthwhile 

Rates remain poor , so in general buying an annuity is not great value at the moment . However there are lots of variations .

Buying a lifetime annuity , inflation linked at say 60 is going to be very expensive, for the income you get.

Buying a term annuity ( say 10 years  ) with no inflation at say age 75 , is better value and can play a part in the latter stages of retirement planning.

GSP

Albermarle said:

I'd heard a while ago that the annuity rates aren't great but I'd be interested to know if this has changed and whether you felt converting to an annuity was worthwhile 

Rates remain poor , so in general buying an annuity is not great value at the moment . However there are lots of variations .

Buying a lifetime annuity , inflation linked at say 60 is going to be very expensive, for the income you get.

Buying a term annuity ( say 10 years  ) with no inflation at say age 75 , is better value and can play a part in the latter stages of retirement planning.

If it happens at all, what would trigger annuity rates to rise in future, higher interest rates?

NannaH

I think that buying an annuity even at 75/80 is a big risk,  if you need a care home you will be scunnered unless you have a £1million pot.  My neighbour has paid £38,000 a year (plus her pension) for 8 years for dementia care for his wife. 

Then again,  if you have a decent drawdown pot you will be taxed on money used for care home fees and your money will run out faster. 
There ought to be a much higher personal allowance for those self funding their care,  it’s a disgrace that there isn’t. 

dunstonh

Annuties are linked to gilt yields which in turn are linked to interest rates (and a few lesser things).    Annuities also rely on cross subsidy.  However, as most annuities are underwritten on health basis nowadays, that cross subsidy is not as strong as it used to be.  Plus, fewer people are buying annuties. So, the cross subsidy pool is lower and interest rates are low.  Pretty much a perfect storm for market conditions not favouring an annuity unless you can't stand investment risk.    As interest rates rise, annuity rates should improve.   Then maybe more people will buy them and things will improve.

GSP

dunstonh said:

Annuties are linked to gilt yields which in turn are linked to interest rates (and a few lesser things).    Annuities also rely on cross subsidy.  However, as most annuities are underwritten on health basis nowadays, that cross subsidy is not as strong as it used to be.  Plus, fewer people are buying annuties. So, the cross subsidy pool is lower and interest rates are low.  Pretty much a perfect storm for market conditions not favouring an annuity unless you can't stand investment risk.    As interest rates rise, annuity rates should improve.   Then maybe more people will buy them and things will improve.

Thanks dunstonh.
For those with line graph creativity skills, be interesting to see one with average annuity rates alongside base rates for the last 30 or 40 years. Especially the last period where the base rate has been so low historically.

Linton

Annuity rates must rise and fall with longer term gilt rates.  The pension companies must buy gilts to match their liabilities, they cant risk the company by relying on shares providing the money when needed.

westv

And the end of rates based on gender will have affected rates. I wonder what today's rates would be like if that hadn't happened.

Albermarle

NannaH said:

I think that buying an annuity even at 75/80 is a big risk,  if you need a care home you will be scunnered unless you have a £1million pot.  My neighbour has paid £38,000 a year (plus her pension) for 8 years for dementia care for his wife. 

Then again,  if you have a decent drawdown pot you will be taxed on money used for care home fees and your money will run out faster. 
There ought to be a much higher personal allowance for those self funding their care,  it’s a disgrace that there isn’t. 

On the other side , you might reach an age where managing a drawdown pot might become difficult and an annuity reduces anxiety. Or you maybe be worried that your spouse could not manage investments etc if you died. 
No easy answers !