Can I buy an Annuity. No pension

Linton

arnoldy said:

Missmarple said:

My husband and I don't have a pension (other than state pension when 67)...if we sold up would have around 400k...Can we buy an annuity? 

This is a seriously bad idea IMO. That 400k is tax free, if you get an annuity the income from that would be taxable when SP kicks in. Why an earth would you want to do that? You are better off drip feeding into an ISA with a sensible income generating portfolio that should give you £16k pa or so with no tax to pay.

And anyway annuities have loads of other issues apart form those index linked which are unaffordable/poor value so also not good.

No - if you buy an annuity with taxed money (a "purchased life annuity") it will be largely tax free since most of the income is treated as return of your own money.

OldScientist

Assuming you will retire at 67 and that you will sell up your rental properties in the run up to retirement and interest rates will be the same then as now (i.e. the prices of annuities will be the same, see https://www.hl.co.uk/retirement/annuities/best-buy-rates) then

Annual income:
Single life annuity with RPI: 3.6% of 400k, i.e. 14.4k per year 
Joint life annuity (100%, assuming both people are same age, own calculation) with RPI: 2.7% of 400k, i.e. £10.8k per year
Investment portfolio income (see https://www.2020financial.co.uk/pension-drawdown-calculator/, 55% stocks/45% bonds, 33 year retirement, no historical failures, CPI protection): 2.8% of 400k, i.e. £11.2k per year

The annuity rates could be very different in 8-9 years time - depends on prevailing interest rates and life expectancy.
Investment portfolio income is based on historical UK outcomes over the last 100 odd years - what the next 30 years or so will bring is not known (but UK history does cover some pretty grim times).

It is quite possible to both purchase an annuity and have an investment portfolio (e.g. some proportion of the money in each).

One thing you didn't mention (and may be more important to consider first) is what your expenditure is likely to be. One reasonably sensible approach is to cover essential expenditure (food, heating, etc.) with guaranteed income (e.g. state pension, DB pension, and annuities) and leave the investment portfolio to cover discretionary expenditure.

coyrls

I am not sure that purchased life annuity rates are the same as pension annuity rates.

OldScientist

coyrls said:

I am not sure that purchased life annuity rates are the same as pension annuity rates.

You are correct that they are not necessarily the same (the only comparison I can find online, at sharingpensions.co.uk, appears to indicate that rates for purchased annuities are about 10% below those for pension annuities)... it would be essential to get actual quotes (which are, in any case, likely to be very different in 7 or 8 years time).  The tax considerations are currently different for purchased life annuities and pension annuities.

Missmarple

Thank you everyone for your input. It looks like my best course of action is to keep the buy to lets (we have 4 mortgaged at interest only) for as long as possible selling two and buying two as we approach 67 and state pension age. The two buy to lets should produce at todays rate 42k plus state pension at 19k. The upkeep and servicing of the buy to lets will come out of the 42k. We will then have 3 properties we own outright, we just wanted to be free of the rental properties but it seems to be the only way for a steady income as long as they can be rented. They are student lets so perhaps more hassle than family lets. I do appreciate the advice and need a clear path in my mind, it's easy to make a costly mistake. 

kidmugsy

What you would be buying with money from outside a pension scheme is called a Purchased Life Annuity.  It's my impression that nobody sells an inflation-linked one.  The tax position is favourable: part of the annuity is treated as return of capital and is untaxed.  The rest can be set against savings allowance and (if you get it) the Starting Rate for Savings.

You could each get the equivalent of a small inflation-linked annuity by deferring your state pension by a year or two.  Calculator here: http://www.johnkay.com/pension/

I agree with the commenters who suggested you fill SIPPs like billy-oh.  In your shoes I'd want rid of hassle at state retirement age so I'd be looking to sell properties and perhaps invest some of the proceeds in shares of companies that invest in residential property. Dividends are taxed quite lightly (at the moment).  

Another possibility would be to invest in the most tax-efficient type of property i.e. owner-occupied.  In other words buy a bigger, more expensive house and generate some tax-free income by taking a lodger.  A friend of ours took lodgers for years and was happy with both the income and with bit of younger company.