Annuities

OldScientist

westv said:

OldScientist said:

dunstonh said:

I would be on guard with using generic tables as they often understate the actual annuity rate.

I got an annuity quote last week for a 67 year old, single RPI (no cap) with 100% value protect with no upper age limit and it was 4.03%. (level was 6.06%).  Not far off the figures mentioned above but these included value protect.    We didn't buy but I would not be surprised if we did in a couple of years, for that particular person if the recent trend was to continue.   

Thanks - useful information and an excellent rate with value protect.

There are clearly variations between postcode (up to 5% difference) and between insurance companies (up 20% from highest to lowest) - as an IFA you may very well have better access to 'whole of market' than moneyhelper (which I have read is quite limited) or, perhaps less likely, HL. With fairly rapid changes in the gilt rates, I guess different companies update their prices at different times. And, there is the effect of health.

Way back when were there just two rates male/female based on age or more variations? 

My understanding (which may be faulty) is that the postcode variations arose because gender discrimination was no longer allowed after 2013 or so. Health has been used for years (e.g. smokers get better rates).

There's a paper by Cannon and Tonks ("UK annuity price series, 1957-2002") that has some fascinating (for those of us sad enough to find any of this fascinating!) information about the history of UK annuities. For example they present some evidence that suggests the size of the purchase affected the rate offered (no idea whether that is still the case).

bostonerimus

Linton said:

bostonerimus said:

I would imagine that for most people using a 5 year savings bond ladder will continue to be a better financial outcome than an index linked annuity. The advantage of the annuity is it's mortality credit and longevity insurance component, but you have to live long enough to collect on those.

What is "a better financial outcome" given you dont know and have little control over your date of death? Your advantage of buying an annuity is the whole reason to do so - ensure you have an acceptable standard of living until you die, whenever that may be.  Any other way of achieving that aim is likely to be less successful or more expensive.  What age of death are you going to assume for determining the size of your bond ladder?

I'm talking in the aggregate. An individual won't know when they'll die, but we can know the distribution of mortalities for a large group of people and so I made my comment for "most people". "Most people" will be able to generate similar income from a savings bond ladder as an annuity up to the point that they die and have a bit of capital left over. Of course that isn't a very sensible approach unless you are terminally ill as you buy the annuity for longevity insurance. An individual doesn't know if they will be in that "most people" group who won't live long enough to really collect on the annuity's long term benefits...of course the optimist in us all makes us hope that we will beat the average.

arnoldy

My understanding (which may be faulty) is that the postcode variations arose because gender discrimination was no longer allowed after 2013 or so. 

Sorry but does that mean in general that it is even worse for a man to buy an annuity because they are subsidising females? But a female would be subsidised by the males, they generally going earlier? I may have miss understood or used incorrect phraseology, apologies in advance. 

Nebulous2

bostonerimus said:

bostonerimus said:

Previous pension regimes where you had to buy an annuity were restrictive, but the preeminence of the DC solution today is being shown to have its own issues when growth stalls, inflation kicks up and stock markets fall. A hybrid solution is probably the best for most people.

I'll quote myself hear and mention Linton's comments about longevity insurance. The question is what is mean by the "best" solution. Is it the one that leaves you possibly the richest at death, or the one that lets you sleep most soundly? The answers can only be known in hindsight, but we can make educated guesses and moderate over exuberance with a little caution.

One of the things that varies quite a bit on this forum is what is the question you are providing a solution to? 

There are a lot of people who have a significant part of their focus on providing an inheritance. Others have a primary focus on being financially secure in their retirement. 

That contributes to disagreements here - there isn't a common understanding on what they want to do. 

michaels

arnoldy said:

My understanding (which may be faulty) is that the postcode variations arose because gender discrimination was no longer allowed after 2013 or so. 

Sorry but does that mean in general that it is even worse for a man to buy an annuity because they are subsidising females? But a female would be subsidised by the males, they generally going earlier? I may have miss understood or used incorrect phraseology, apologies in advance. 

Probably, just as new female drivers subsidise their more crashtastic male siblings.  Seems to me wokeism of this sort where logic goes out the window is why the whole concept gets a bad image.

With something optimal like annuities biased rates will result in a biased uptake, car insurance is compulsory so the women just have to suck it up.

arnoldy

michaels said:

arnoldy said:

My understanding (which may be faulty) is that the postcode variations arose because gender discrimination was no longer allowed after 2013 or so. 

Sorry but does that mean in general that it is even worse for a man to buy an annuity because they are subsidising females? But a female would be subsidised by the males, they generally going earlier? I may have miss understood or used incorrect phraseology, apologies in advance. 

Probably, just as new female drivers subsidise their more crashtastic male siblings.  Seems to me wokeism of this sort where logic goes out the window is why the whole concept gets a bad image.

With something optimal like annuities biased rates will result in a biased uptake, car insurance is compulsory so the women just have to suck it up.

Yes but you have to buy car insurance so very unfair for the females. But with annuities yet another reason why men should not buy. Maybe if you are a couple and you want a mix of retirement income you make sure the female is the one buying the annuity - at least they will get subsidised by those men who who buy annuities.