Current annuity rates

dunstonh

” Also, nobody labels themselves as annuity specialist it’s in the UK.”  Purely factual claim which happens to be false. In fact there are lots of people and companies in the UK who claim they are annuity specialists.  Whether they all are or not is questionable and individual qualifications and experience have to be established but the original claim was a lie, 

A company marketing itself as something doesn't mean that they are actually something official.  For example, there are only a small number of websites that refer to themselves as annuity specialists.  However, delve deeper and you find they are IFAs or FAs and have websites covering multiple business areas where they claim to be specialists.  It is just marketing.   Those that do online quotes don't use specialists.  They have unregulated clerical staff keying in details that consumers have given them to see who pops up top using the chosen options.  No advice given.  From a regulatory point of view, an IFA is the annuity specialist. 

zagfles

Deleted_User said:

zagfles said:

westv said:

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.

Why would that be important to anyone?

Seems obvious. People have some idea of personal life expectancy and spending plans. This helps to compare options.

If you're playing the game of "how to most likely maximise lifetime income", you probably won't consider annuities at all. If you're playing the game of "guaranteed income for life", which is what annuties are designed for, you can either choose a guaranteed real terms for life amount, or an amount reducing in real terms by an unknown amount every year.

Personally I can't see the point in the latter. If you really want to front load your spend, which I can see good reason for, there are likely better ways to do it.

westv

zagfles said:

Deleted_User said:

zagfles said:

westv said:

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.

Why would that be important to anyone?

Seems obvious. People have some idea of personal life expectancy and spending plans. This helps to compare options.

If you're playing the game of "how to most likely maximise lifetime income", you probably won't consider annuities at all. If you're playing the game of "guaranteed income for life", which is what annuties are designed for, you can either choose a guaranteed real terms for life amount, or an amount reducing in real terms by an unknown amount every year.

Personally I can't see the point in the latter. If you really want to front load your spend, which I can see good reason for, there are likely better ways to do it.

There's nothing to stop someone taking the higher income of a level annuity and investing part of the excess compared to a RPI annuity.

[Deleted User]

Linton said:

Deleted_User said:

Linton said:

Deleted_User said:

Linton said:

I am struggling to think of how a Monte Carlo simulation would help me decide which annuity is most appropriate for my circumstances, wishes, and needs.  Perhaps the situation in the US differs in some way from the UK. I guess insurance companies may use such methods in designing their annuity offerings to profitably satisfy market requirements for annuities but when working on the needs of an individual they seem totally irrelevent.

Its not the only consideration by any means but I want to understand risk pooling vs risk premium for an annuity.  And to estimate this I need to run multiple Monte Carlo simulations.  

In other words, I want to understand what the annuity provider charges for the service of taken the burden of some risk of my hands so I need to try and reproduce their analysis.  This would also tell me whether a particular option is priced competitively.  The other reason to use Monte Carlo simulations is similar: to understand if you can handle a particular risk yourself in a more cost efficient manner than to let an annuity provider pool this risk for you. 

I cannot see most customers wanting to understand the details of the provider fees against the service.  The only factors that really matter are firstly what  the annuity offers and then the total cost.  Whether that cost arises from high or low fees,  good or poor financial  management etc etc is irrelevent. Same as buying anything else, do you base your choice of car on the manufacturer's balance sheet?

Perhaps one important factor that may be different in the US is that annuities are protected by the FSCS, so the provider going bust is not an issue.  Other than idle curiousity why would an ordinary customer want to know about risk pooling vs risk premium?  Those are surely issues for the annuity provider.

Annuities are protected by the state almost everywhere. Which still carries a risk. Back to Monte Carlo and premiums…

I strongly disagree that understanding how the risk is priced and premium shouldn’t be looked at.  Certain annuity options are priced much more competitively.  Certain sections of the market are “niche” and providers can charge a large margin.  Its a simple matter of pounds in your pocket or providers.  People might be happy that Rolls Royce charges a huge premium just so they can brag. Thats not what annuity is about. 

A cheap annuity that doesnt do what you want is surely pointless. If there are two annuities that do what you want then the cheapest would seem to be a sensible option.  Why one is cheaper than the other is irrelevent.

“…to you”. Which is fine. To me the issue is about picking the best value option for a portion of my assets to handle certain risks. There are lots of options and I want to understand exactly what I am buying for my pounds. Like there are different types of bonds, prefs, linkers with certain clauses from various providers and varying liquidity/trading costs and again I want to understand in depth before I spend my hard earned money. If I like the stock, I still check the price. It might be a great company “doing what I want” but the price could be wrong. Even more important for an annuity because it’s irreversible. You have a different approach which is great. Some people can do it all by themselves which is fine too. I will be going to a specialist and in my opinion an average IFA does not have the maths or the specialist knowledge. To each his own.

dunstonh

 I will be going to a specialist and in my opinion an average IFA does not have the maths or the specialist knowledge. 

You are on a different continent and have no idea of what an IFA does.    You have just become an anti-IFA troll and you lose credibility because of that.

bostonerimus

Linton said:

I am struggling to think of how a Monte Carlo simulation would help me decide which annuity is most appropriate for my circumstances, wishes, and needs.  Perhaps the situation in the US differs in some way from the UK. I guess insurance companies may use such methods in designing their annuity offerings to profitably satisfy market requirements for annuities but when working on the needs of an individual they seem totally irrelevent.

I treated my DB pension (sort of an index annuity) as just another asset class when I use the online Monte Carlo method retirement calculators. The probability distribution results convinced me that I don't need to buy another annuity with the deferred annuity I've had since 1989 so it will just keep accumulating. It also agreed with my intuition and budgeting that I had enough guaranteed retirement income. People might want to compare indexed vs flat annuities and time the they take them in their planning ie do they need guaranteed income now or later in life.

Linton

Deleted_User said:

Linton said:

Deleted_User said:

Linton said:

Deleted_User said:

Linton said:

I am struggling to think of how a Monte Carlo simulation would help me decide which annuity is most appropriate for my circumstances, wishes, and needs.  Perhaps the situation in the US differs in some way from the UK. I guess insurance companies may use such methods in designing their annuity offerings to profitably satisfy market requirements for annuities but when working on the needs of an individual they seem totally irrelevent.

Its not the only consideration by any means but I want to understand risk pooling vs risk premium for an annuity.  And to estimate this I need to run multiple Monte Carlo simulations.  

In other words, I want to understand what the annuity provider charges for the service of taken the burden of some risk of my hands so I need to try and reproduce their analysis.  This would also tell me whether a particular option is priced competitively.  The other reason to use Monte Carlo simulations is similar: to understand if you can handle a particular risk yourself in a more cost efficient manner than to let an annuity provider pool this risk for you. 

I cannot see most customers wanting to understand the details of the provider fees against the service.  The only factors that really matter are firstly what  the annuity offers and then the total cost.  Whether that cost arises from high or low fees,  good or poor financial  management etc etc is irrelevent. Same as buying anything else, do you base your choice of car on the manufacturer's balance sheet?

Perhaps one important factor that may be different in the US is that annuities are protected by the FSCS, so the provider going bust is not an issue.  Other than idle curiousity why would an ordinary customer want to know about risk pooling vs risk premium?  Those are surely issues for the annuity provider.

Annuities are protected by the state almost everywhere. Which still carries a risk. Back to Monte Carlo and premiums…

I strongly disagree that understanding how the risk is priced and premium shouldn’t be looked at.  Certain annuity options are priced much more competitively.  Certain sections of the market are “niche” and providers can charge a large margin.  Its a simple matter of pounds in your pocket or providers.  People might be happy that Rolls Royce charges a huge premium just so they can brag. Thats not what annuity is about. 

A cheap annuity that doesnt do what you want is surely pointless. If there are two annuities that do what you want then the cheapest would seem to be a sensible option.  Why one is cheaper than the other is irrelevent.

“…to you”. Which is fine. To me the issue is about picking the best value option for a portion of my assets to handle certain risks. There are lots of options and I want to understand exactly what I am buying for my pounds. Like there are different types of bonds, prefs, linkers with certain clauses from various providers and varying liquidity/trading costs and again I want to understand in depth before I spend my hard earned money. If I like the stock, I still check the price. It might be a great company “doing what I want” but the price could be wrong. Even more important for an annuity because it’s irreversible. You have a different approach which is great. Some people can do it all by themselves which is fine too. I will be going to a specialist and in my opinion an average IFA does not have the maths or the specialist knowledge. To each his own.

I haver already said price is a very important factor, the discussion is why one would want to know why the price is what it is.

You may want to have that level of visibility at the fundamentals if you are buying bonds, shares, or funds.  Annuities are different.  What you get when you buy one is 100% specified for their whole duration. The price is specified up front. There is no room for any other significant factors.

Perhaps you would be happiest going to someone with whom you can have nerd-level discussions of the intricacies of how annuities work, but I cant see that being of interest to the vast majority of people wanting to buy an annuity.  Any more than a detailed discussion of battery chemistry is to purchasers of EVs.  In any case I think you would have great difficulty finding someone with the level of detailed technical knowledge on the internal operations of insurance companies you require who is also able to give regulated advice on buying an annuity.

zagfles

westv said:

zagfles said:

Deleted_User said:

zagfles said:

westv said:

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.

Why would that be important to anyone?

Seems obvious. People have some idea of personal life expectancy and spending plans. This helps to compare options.

If you're playing the game of "how to most likely maximise lifetime income", you probably won't consider annuities at all. If you're playing the game of "guaranteed income for life", which is what annuties are designed for, you can either choose a guaranteed real terms for life amount, or an amount reducing in real terms by an unknown amount every year.

Personally I can't see the point in the latter. If you really want to front load your spend, which I can see good reason for, there are likely better ways to do it.

There's nothing to stop someone taking the higher income of a level annuity and investing part of the excess compared to a RPI annuity.

You're right, there's nothing to stop them. But why would they?

zagfles

dunstonh said:

 I will be going to a specialist and in my opinion an average IFA does not have the maths or the specialist knowledge. 

You are on a different continent and have no idea of what an IFA does.    You have just become an anti-IFA troll and you lose credibility because of that.

People are allowed to have different opinions on IFA you know. You lose credibility on any discussion about IFAs as you obviously have a vested interest.

[Deleted User]

zagfles said:

Deleted_User said:

zagfles said:

westv said:

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.

Why would that be important to anyone?

Seems obvious. People have some idea of personal life expectancy and spending plans. This helps to compare options.

If you're playing the game of "how to most likely maximise lifetime income", you probably won't consider annuities at all. If you're playing the game of "guaranteed income for life", which is what annuties are designed for, you can either choose a guaranteed real terms for life amount, or an amount reducing in real terms by an unknown amount every year.

Personally I can't see the point in the latter. If you really want to front load your spend, which I can see good reason for, there are likely better ways to do it.

I am playing a game of maximizing lifetime spending in a safe manner and annuities are a great tool alongside others.