Current annuity rates

westv

I noticed today that Moneyhelper comparison site now shows:-
age 60 RPI 50% spouse, 10 year guarantee as 3.16%
100% spouse, no guarantee 2.77%

OldScientist

Albermarle said:

All depends on what inflation does over your lifetime (i.e., nobody actually knows which will be best - you'll find out in 20 or more years!). Assuming a level annuity gives 7.1% income and an RPI one 4.1% (single life, 5 year guarantee aged 65 - at HL), then

As I understand it the RPI will be scrapped in 2030. Presumably then these RPI linked annuities will be then linked to CPIH?

If so, then as CPIH is typically lower than RPI, it will reduce the value of an RPI linked annuity as from 2030. Maybe the change is already accounted for in the rates on offer. ? I have no idea!

My understanding is also that RPI is being scrapped for index-linked gilts (and consequently, annuities) from 2030. I think the reason for this was a concern with deflation since RPI can end up negative more easily than CPIH - there were some articles back in 2009(?) worrying about deflation with IL annuities if they hadn't been purchased with a floor (which most were not).

I also note that the first percentile of annualised CPI for the UK (I've used the database at https://www.macrohistory.net for the inflation data) range from 22.8% for a one year period (1916) to 7.5% for a more relevant 30 year period (starting in 1963) - in other words CPI has still been fairly high in the past.

For the same case as before before (i.e. 4.1% for IL annuity and 7.1% for level annuity) and an annualised CPI of 7.5%, the instantaneous income crossover occurs after about 8 years and the crossover in accumulated income after about 14 years.

As insurance against high inflation this may be quite attractive - of course, if inflation is eventually brought under control and ends up close to the BoE target of 2%, then this would, in retrospect, have been a poor decision. Of course, for retirees who already have sufficient amounts of inflation linked income (state pension, DB pension etc.), then a level annuity may provide a welcome boost to nominal income in the early retirement years beyond what might be sensible to drawdown from an investment portfolio. In other words, there isn't, in my view, a single 'correct' answer.

zagfles

Albermarle said:

You can always hedge your bets and have a fixed 3% pa increase. More expensive than level but cheaper than inflation link.

What's the point? 3% might be more or less than inflation. Maybe much more or less. Why not just stick with equities and drawdown if you want to take a risk?

[Deleted User]

zagfles said:

Albermarle said:

You can always hedge your bets and have a fixed 3% pa increase. More expensive than level but cheaper than inflation link.

What's the point? 3% might be more or less than inflation. Maybe much more or less. Why not just stick with equities and drawdown if you want to take a risk?

Different risk? Diversification? Protection from future investment errors as one goes old and a little senile? Those are just some  of possible reasons.  

Secret2ndAccount

Gradually declining income is exactly what I have in my drawdown plan. I have DB+SP to the tune of 20k. That will keep the lights on and put food on the table. So my pot, from age 67, is purely for discretionary spending. Right now I am spending my pot hand over fist - traveling the world; fast cars, new phone, more cabinets for the kitchen. I highly doubt I will want to do that when I am 77 (and I'm sure I won't be able to afford to). So a level annuity at 67 - knowing that my real terms income will gradually decrease - sounds like just what I need.
In reality, we are always at the mercy of inflation - capped DB's, drawdown plans, personal inflation rate - we don't have total control. I'm not worried about it. Far more likely that I have a stroke or a heart attack or debilitating health issue whilst my income sits within a few percent of what I predicted 10 or 20 years earlier. I'm happy to devote my efforts to maintaining or regaining my health rather than calculating a fresh drawdown rate at 77.

westv

zagfles said:

Albermarle said:

You can always hedge your bets and have a fixed 3% pa increase. More expensive than level but cheaper than inflation link.

What's the point? 3% might be more or less than inflation. Maybe much more or less. Why not just stick with equities and drawdown if you want to take a risk?

At least with fixed increases you can see with 100% certainty where you would start to be better off than a level annuity.

thriftytracey

Secret2ndAccount said:

Gradually declining income is exactly what I have in my drawdown plan. I have DB+SP to the tune of 20k. That will keep the lights on and put food on the table. So my pot, from age 67, is purely for discretionary spending. Right now I am spending my pot hand over fist - traveling the world; fast cars, new phone, more cabinets for the kitchen. I highly doubt I will want to do that when I am 77 (and I'm sure I won't be able to afford to). So a level annuity at 67 - knowing that my real terms income will gradually decrease - sounds like just what I need.
In reality, we are always at the mercy of inflation - capped DB's, drawdown plans, personal inflation rate - we don't have total control. I'm not worried about it. Far more likely that I have a stroke or a heart attack or debilitating health issue whilst my income sits within a few percent of what I predicted 10 or 20 years earlier. I'm happy to devote my efforts to maintaining or regaining my health rather than calculating a fresh drawdown rate at 77.

Save some for hip/knee operations, lord knows what the waiting time is now.  My neighbour has had to have both hip joints replaced at £12,500 each.  I have modest savings I suppose if I had known I would have saved more for precisely this reason.

Basically, you have only got to age 79 to travel.  At 80 travel insurance becomes unaffordable and I have recently learned, you can't hire a car aged 80.

wjr4

Deleted_User said:

wjr4 said:

Deleted_User said:

Something like an annuity… Its an irreversible decision. There is a surprising number of options.  Personally I would either read lots and lots or consult a specialist. Ideally both. And brokers like IFAs do get special rates. Personally I would look for an annuity specialist rather than just a generic advisor. And it’s easy to compare to see if you got a good deal. 

You don’t need an annuity specialist. IFAs are fine to deal with annuities. 

So all IFAs are in agreement on this. Surprising, eh? 

You may well be right but my opinion is that it should be an annuity specialist. Who may or may not be an IFA. As a customer I only care that he/she knows the subject in great depth and has access to whole of the market. I would use references and learn enough to evaluate the advisor is indeed meeting my needs. And pick the best option out of advised recommendations. 

There are a lot of options and issues that need to be covered, eg income annuities, variable, fixed index, deferred, partial annualization, handling of legacy, insurance, guaranteed payout, tax; risk management, pooling and premium, credit risk, etc. There is quite a bit of maths behind it (eg Monte Carlo analysis to properly understand risk premium).  

I believe you but still have some residual scepticism that every IFA knows all there is to know about annuities. 

An IFA gives a holistic overview of the client’s circumstances & I can say personally, as a non annuity ‘specialist’ that I fully understand annuities. Also, nobody labels themselves as annuity specialist it’s in the UK. It’s part of the job of being an adviser. Anyway, you clearly seem to know all there is to know about annuities so why don’t you become an annuity specialist!! 

As an adviser, surprisingly I actually know all there is to know behind the scenes. Clients may not see the Monte Carlo forecasts but they are done. 

Albermarle

Basically, you have only got to age 79 to travel.  At 80 travel insurance becomes unaffordable

Even earlier if you have certain conditions. A health condition that might bump up a 50year old premium 20%, can bump up a 75 year old by 100% from an already high base.

Of course you can still travel in the UK, and maybe risk it in Europe with your UK Health Insurance Card.

[Deleted User]

wjr4 said:

Deleted_User said:

wjr4 said:

Deleted_User said:

Something like an annuity… Its an irreversible decision. There is a surprising number of options.  Personally I would either read lots and lots or consult a specialist. Ideally both. And brokers like IFAs do get special rates. Personally I would look for an annuity specialist rather than just a generic advisor. And it’s easy to compare to see if you got a good deal. 

You don’t need an annuity specialist. IFAs are fine to deal with annuities. 

So all IFAs are in agreement on this. Surprising, eh? 

You may well be right but my opinion is that it should be an annuity specialist. Who may or may not be an IFA. As a customer I only care that he/she knows the subject in great depth and has access to whole of the market. I would use references and learn enough to evaluate the advisor is indeed meeting my needs. And pick the best option out of advised recommendations. 

There are a lot of options and issues that need to be covered, eg income annuities, variable, fixed index, deferred, partial annualization, handling of legacy, insurance, guaranteed payout, tax; risk management, pooling and premium, credit risk, etc. There is quite a bit of maths behind it (eg Monte Carlo analysis to properly understand risk premium).  

I believe you but still have some residual scepticism that every IFA knows all there is to know about annuities. 

An IFA gives a holistic overview of the client’s circumstances & I can say personally, as a non annuity ‘specialist’ that I fully understand annuities. Also, nobody labels themselves as annuity specialist it’s in the UK. It’s part of the job of being an adviser. Anyway, you clearly seem to know all there is to know about annuities so why don’t you become an annuity specialist!! 

As an adviser, surprisingly I actually know all there is to know behind the scenes. Clients may not see the Monte Carlo forecasts but they are done. 

A) I know enough to ask the right questions and understand the answers.

B ) Having looked at UK’s IFA qualification requirements I seriously doubt most would tell the difference between Monte Carlo and Monaco.  I am sure they can fill in a screen with numbers and click a button though. S-t in, s-t out. 

C) I don’t need a holistic overview.  I have my Investment Policy Statement and work to that. I need an annuity specialist rather than an IFA who would tell me that he knows better what his client needs than the client.  I also need to avoid consultants who use the word “holistic”.

D) You may want to take your argument on terminology to these guys https://www.onlinemoneyadvisor.co.uk/pensions/pension-annuities/annuity-advisors/