Annuities

Silvertabby

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

When I became a LGPS administrator, nearly 25 years ago, I did a number of pensions training courses.  One of them covered annuities, and we were given an example of a scheme annuity offer letter to look at.

From memory, it said:

"Your pension savings are £XXXK.  The highest annual annuity this will buy you is £XXK.  Other options are available, but these will pay lower amounts.  Please contact us if you require any further details."

Of course, the other 'lower' options included annuities with spouses benefits, guarantee periods, index linking, and any combination thereof.  Unlike the headline 'highest' offer, which was just a single life, non index linked annuity.  The instructor said that this was why so many annuity holders went on to leave their surviving spouses in the penniless lurch - because they assumed that they were doing the right thing by taking the highest pension available.

dunstonh

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

This is correct.  And for the most part, people have got away with it.

With index annuities, it would usually take around 13 years for the annuity rate to catch up with level and another 13 to equal the amount paid by level.   The actual timescale would vary depending on age/health.   For many people, 26 or so years was too much and they would rather take the extra money up front.

in reality, the annuity provider wants to pay out the same amount of money whether it is level or indexed over the life expectancy.

With a few more interest rate rises and improving gilt yields, indexed annuities could well be better than a 3.5% draw rate on drawdown. 

Grumpy_chap

If annuity rates increase, won't the investment rate on funds within a draw-down scheme also increase?
So next year's spend on drawdown is the same percentage of a larger pot?

westv

My point was more the fact that annuity rates have been low for some time partly due to low yields on 15 year gilts.
Now inflation has gone a lot higher gilt yields have increased so annuity rates have crept up. 
On the one hand rates were lower but inflation was lower. We seem to be swapping for higher rates but with higher inflation.
With a level income is one any better or worse than the other?

Thrugelmir

westv said:

sheslookinhot said:

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

I guess the higher income affords you discretion in your purchases.

But the quicker your spending power erodes over time.

Doesn't spending tail off the older people are though. 

Thrugelmir

westv said:

My point was more the fact that annuity rates have been low for some time partly due to low yields on 15 year gilts.
Now inflation has gone a lot higher gilt yields have increased so annuity rates have crept up. 
On the one hand rates were lower but inflation was lower. We seem to be swapping for higher rates but with higher inflation.
With a level income is one any better or worse than the other?

Needs to be viewed through the prism of artifically low gilt yields. When Central Banks are no longer buyers of bonds. The free market will again determine the yield required. 

Grumpy_chap

Thrugelmir said:

westv said:

sheslookinhot said:

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

I guess the higher income affords you discretion in your purchases.

But the quicker your spending power erodes over time.

Doesn't spending tail off the older people are though. 

Is that driven by demand tail off or reducing wealth?

I hope to get my Ferrari when I turn ,80.

Thrugelmir

Grumpy_chap said:

Thrugelmir said:

westv said:

sheslookinhot said:

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

I guess the higher income affords you discretion in your purchases.

But the quicker your spending power erodes over time.

Doesn't spending tail off the older people are though. 

Is that driven by demand tail off or reducing wealth?

I hope to get my Ferrari when I turn ,80.

With both my grandparents then my parents. As they grow older they needed less "stuff".  We value waking up everyday instead. 

TELLIT01

On a small pension pot couldn't the admin costs of drawdowns outweigh the benefits of the flexibility?

westv

dunstonh said:

westv said:

dunstonh said:

Kim1965 said:

Can anyone see anniities making a comeback? I believe they are mot as hopeless now. 

Yes.  They will likely begin to outsell drawdown again.

I'm sure I read that most sales in the past were level annuities. Does make me wonder if a higher income amount but with high inflation is any better or worse than a lower income and very low inflation. 

With a few more interest rate rises and improving gilt yields, indexed annuities could well be better than a 3.5% draw rate on drawdown. 

That will depend on age?
I just had a quick look to see what I'd get for age 60 (it's next year but I just put in that I'm that age now), RPI, 50% survivor and no guarantee period.
1.90% on HL's selector.