PP advice for a relative - annuity or drawdown?

dunstonh

Albermarle said:

dunstonh said:

£800 a month annuity purchased for £180,000.  That’s £9600 a year or 5.3%.  That is a hell of an annuity return. Is that normal these days?  

Starting to see annuity rates get above 6% level for those in their mid 60s.   Got a quote yesterday on level basis, spouse with 100% value protect at 5.9%. Without value protect it would be higher.

It seems even a more all singing and dancing annuity with RPI indexing, 50% spouse, 5 year guarantee etc  are getting close to 3% . Do you think they will get better still? 

Whilst gilt yields continue to improve, it is likely.

A_T

always remember an annuity is a bet on how long you will live - and like all bookmakers the odds they give you will be calculated to be in their favour

dunstonh

A_T said:

always remember an annuity is a bet on how long you will live - and like all bookmakers the odds they give you will be calculated to be in their favour

In theory yes.  However, in reality, its not quite as clear-cut with annuities.  Most providers have now pulled out leaving a very small number.   Its not that profitable.    And we must not forget what happens when insurers get annuity pricing wrong. Equitable Life anyone?

JohnWinder

A_T said:

always remember an annuity is a bet on how long you will live - and like all bookmakers the odds they give you will be calculated to be in their favour

Yes, that's the profit they're in business to make. You, on the other hand get protection from the three most significant investments risks you face in retirement: inflation (if you buy the right annuity); longevity risk (income until you die, if they don't go broke); market risk (you hand it over to them).

Beckyy

Sorry for the delay in responding, just wanted to thank everybody for their replies. I've passed the thoughts onto the relative for them to consider before they proceed, much appreciated.

Albermarle

Beckyy said:

Sorry for the delay in responding, just wanted to thank everybody for their replies. I've passed the thoughts onto the relative for them to consider before they proceed, much appreciated.

One more quick point.
For Pension 2, make sure the person whose pension it is has named their spouse as the beneficiary, if they die . If the Spouse dies first then the beneficiary can be changed to another member of the family. Pensions are not to be included in any will, but the pension provider should be informed of any intended beneficiaries.

thriftytracey

Health conditions would improve annuity (depressingly).

I fail to understand why people are taking their 25% tax free lump sum in one go.  There would be tax to pay maybe pushing people into a higher tax bracket.

Mind you I have seen a lot of brand new Motorhomes on my travels.  Anecdotally, many retirees helping out their grandchildren.  Worst case cashing in pensions to help them out.  Crazy.

LHW99

Would it be worth using some of the lump sum(s) to defer the spouse (and perhaps husband's) SP for a year (or so)? The increase wouldn't be inheritable, but it would provide additional guaranteed income. For the spouse I assume the increase would be about 10% for each year deferred?

Albermarle

I fail to understand why people are taking their 25% tax free lump sum in one go.  There would be tax to pay maybe pushing people into a higher tax bracket.

Taking a TAX FREE lump sum means exactly that . NO tax ( and no effect on tax bracket)

Dazed_and_C0nfused

Albermarle said:

I fail to understand why people are taking their 25% tax free lump sum in one go.  There would be tax to pay maybe pushing people into a higher tax bracket.

Taking a TAX FREE lump sum means exactly that . NO tax ( and no effect on tax bracket)

I wonder if the comment was about those why crystallise 100% of their fund by taking the 25% up front so any subsequent investment growth on the remaining 75% is all taxable income (when taken out of the pension)?