Current annuity rates

[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.

Can I ask if you ever invested in stocks? If so, did you use this approach?

 It would work perfectly well if you wanted eggs, you were buying eggs and all  eggs were produced by chickens, were of the same size, colour, quality, same vitamins, nutrition and taste. Annuities have more options than eggs. So its not a pure price comparison. And because you are buying a financial product with money, understanding the make up would tell you if “eggs” for 3 quid are a better buy than than “eggs” for 5 quid.  Or if Appl for $150 is a better buy than META for $125 for my $100K. 

Buying an annuity is a bigger, more complex decision than either buying eggs or stocks.

[Deleted User]

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.

Calling people names is always a great way to gain credibility. 

[Deleted User]

dunstonh said:

” 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. 

Firstly, I don’t care one bit for “something official”. 

Secondly, from a regulatory point of view, British financial services market has been ridden with scandals and questions have been raised about the competence of the regulators.

That aside, an annuity specialist may well be an IFA or an FA but my point is that its far from any of the street guy with abbreviations which are far too easy to acquire. 

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.

Can I ask if you ever invested in stocks? If so, did you use this approach?

 It would work perfectly well if you wanted eggs, you were buying eggs and all  eggs were produced by chickens, were of the same size, colour, quality, same vitamins, nutrition and taste. Annuities have more options than eggs. So its not a pure price comparison. And because you are buying a financial product with money, understanding the make up would tell you if “eggs” for 3 quid are a better buy than than “eggs” for 5 quid.  Or if Appl for $150 is a better buy than META for $125 for my $100K. 

Buying an annuity is a bigger, more complex decision than either buying eggs or stocks.

Stocks are very different to annuities.  When you buy a stock you do not know what you will gain from it. The more information you have the more confident you can be that a decision to buy will lead to a satisfactory result. With shares you clearly do not simply buy the cheapest.

Now look at eggs.  You cannot tell looking at one whether it is free range  and what sort of diet the hens ate.  Either of these may afffect the flavour. So there is an unknown and to protect yourself it may make sense to investigate further. A more expensive egg may be better.

With an annuity you know when you buy exactly what it will provide and this  will be as this is as near 100% guaranteed as anything can be.  More information does not change what that is.  So buying an annuity is much easier than buying stocks or eggs.  You just need to know what you want, whether you can get it for the money at your disposal qnd where to get it most cheaply.  Going for a more expensive annuity that provides exactly the same features doesnt get you a better one.

An IFA can help you decide what you want from an annuity, explain what is available across the market and the likely costs.  I cant see how Monte Carlo modelling or knowing the insurer's profit margin helps with this.  

[Deleted User]

Linton said:

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.

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.

Yes, it is specified up front. Same as with bonds or shares or indeed any contract. And there is small print.  There are many significant factors to consider. Its not like putting money into a high interest account and comparing a single number. 

bostonerimus

Deleted_User 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.

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

My approach was to guarantee as far as possible the income I need for retirement. I did that by paying into both UK and US state pension programs, taking a final job with a DB pension and buying a rental property. Together these should provide about $90k/year when I reach 67 which gives me far more than my annual spending and I leave the rest of the money mostly in equities. Right now the rental property and DB pension are paying out and generating $45k/year which is more than I need. I’m not bothered about maximizing what I can spend as my life and needs are simple and inexpensive. I simply don’t worry about my investments anymore or if I should buy an annuity which is what I define as “financial independence”.

[Deleted User]

bostonerimus said:

Deleted_User 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.

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

My approach was to guarantee as far as possible the income I need for retirement. I did that by paying into both UK and US state pension programs, taking a final job with a DB pension and buying a rental property. Together these should provide about $90k/year when I reach 67 which gives me far more than my annual spending and I leave the rest of the money mostly in equities. Right now the rental property and DB pension are paying out and generating $45k/year which is more than I need. I’m not bothered about maximizing what I can spend as my life and needs are simple and inexpensive. I simply don’t worry about my investments anymore or if I should buy an annuity which is what I define as “financial independence”.

We are at $69K CAD/year of inflation protected DB for the 2 of us (last years dollars) so we do need an annuity to cover the basics in full and investments for a bit of extra.  

“Financial independence” is a bit of a moving target for us. I am finding its not really relevant. I already quit the job; my wife did so a few years back. We have a small farm and lots of “projects” which can absorb any amount of money we are prepared to spend. We are making a profit but it all goes back into new projects. I am doing technical consultancy work as well but being picky and without having to deal with corporate BS. 

In other words we could probably do nothing and live off investments, assuming 2022 returns do not persevere for 5 more years. But it wouldn’t be much fun.  

bostonerimus

Deleted_User said:

bostonerimus said:

Deleted_User 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.

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

My approach was to guarantee as far as possible the income I need for retirement. I did that by paying into both UK and US state pension programs, taking a final job with a DB pension and buying a rental property. Together these should provide about $90k/year when I reach 67 which gives me far more than my annual spending and I leave the rest of the money mostly in equities. Right now the rental property and DB pension are paying out and generating $45k/year which is more than I need. I’m not bothered about maximizing what I can spend as my life and needs are simple and inexpensive. I simply don’t worry about my investments anymore or if I should buy an annuity which is what I define as “financial independence”.

We are at $69K CAD/year of inflation protected DB for the 2 of us (last years dollars) so we do need an annuity to cover the basics in full and investments for a bit of extra.  

“Financial independence” is a bit of a moving target for us. I am finding its not really relevant. I already quit the job; my wife did so a few years back. We have a small farm and lots of “projects” which can absorb any amount of money we are prepared to spend. We are making a profit but it all goes back into new projects. I am doing technical consultancy work as well but being picky and without having to deal with corporate BS. 

In other words we could probably do nothing and live off investments, assuming 2022 returns do not persevere for 5 more years. But it wouldn’t be much fun.  

I'm consulting too, it's for an old colleagues startup, but after taxes and FICA is paid the money goes into a self-employed pension plan. I live off my DB and rent and even put a bit of that into regular investments. I'm single with no debt and live simply so $45k is more than enough for me. Because my income isn't directly connected to the stock or bond markets I can be sanguine about their movements and if I'm down 20% I don't care as I'm not planning on touching that money. I can see the cons of an annuity, but with rates becoming respectable again the biggest thing an annuity has going for it is the regular cheque coming through the door without you having to think about it. I had DC pensions sold to be all the time and had to participate in them as there often wasn't an alternative, so for most of my working life I've been arranging things so I don't have to use drawdown for income. I'm a bit extreme, but I think everyone should have enough non-investment/drawdown income to survive and if SP isn't enough for that then they should plan to get more. Of course that's easy to say when you've been well paid all your career and many people will find that hard to do, particularly today with inflation at 10%.

wjr4

Deleted_User said:

dunstonh said:

” 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. 

Firstly, I don’t care one bit for “something official”. 

Secondly, from a regulatory point of view, British financial services market has been ridden with scandals and questions have been raised about the competence of the regulators.

That aside, an annuity specialist may well be an IFA or an FA but my point is that it’s far from any of the street guy with abbreviations which are far too easy to acquire. 

I think you need to stick to forums from your own continent. 

bostonerimus

wjr4 said:

Deleted_User said:

dunstonh said:

” 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. 

Firstly, I don’t care one bit for “something official”. 

Secondly, from a regulatory point of view, British financial services market has been ridden with scandals and questions have been raised about the competence of the regulators.

That aside, an annuity specialist may well be an IFA or an FA but my point is that it’s far from any of the street guy with abbreviations which are far too easy to acquire. 

I think you need to stick to forums from your own continent. 

The dangers of the internet...you get exposed to people like Canadians. Seriously, would limiting access on a geographical basis be a good thing? First they came for the Canadians and I said nothing and then they came for the people from Harrogate...and all the Lancastrians cheered...You can block a user yourself rather than taking them away from us all.