Help understanding an annuity

Andy2508

Hi all, I’m hoping someone could help me regarding an annuity. My grandad took out an annuity almost 10 years ago, and has been receiving money from this since. Unfortunately he has recently been diagnosed with cancer and isn’t fit enough to undergo treatment. He has a substantial amount left in the annuity in which he’d like to take out to enjoy the money whilst he can, however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

I’m just wondering if anyone on here who understands these things a bit more could confirm this is the case, or if not what I can do for him going forward? 

Thanks very much 

jaypers

I’m really sorry to hear about your grandad and wish him and your family all the best. I am no expert on annuities but it is my understanding that this is the downside to them, whereby the money is locked into the scheme for your lifetime and then effectively lost. I believe there are certain things you can do when you take out the annuity, but options are limited, unlike a drawdown scheme. Benefit of the annuity is that income is guaranteed Vs the uncertainty of drawdown funds which are affected by market volatility. 

Dazed_and_C0nfused

Andy2508 said:

Hi all, I’m hoping someone could help me regarding an annuity. My grandad took out an annuity almost 10 years ago, and has been receiving money from this since. Unfortunately he has recently been diagnosed with cancer and isn’t fit enough to undergo treatment. He has a substantial amount left in the annuity in which he’d like to take out to enjoy the money whilst he can, however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

I’m just wondering if anyone on here who understands these things a bit more could confirm this is the case, or if not what I can do for him going forward? 

Thanks very much 

I don't think you've understood the basics of an annuity.

In simple terms your grandad gave away his pot of money to Aviva.

In return Aviva have agreed to pay him £x per month/year, probably for the rest of his life but possibly for a fixed period.

You need to find the annuity paperwork to check the fine detail but it's highly unlikely he has any money left in the way you mean.

Andy2508

Thanks for the quick replies. Admittedly I’m not overly savvy with these things. I’ve looked at his paperwork and it looks like he ‘purchased’ the annuity in Nov 2013 for X amount and he still has around 30% of this amount ‘available’. I think I’m resigned to the fact he will be unable to get a lump sum, it’s now just trying to explain this to him! 

Dazed_and_C0nfused

Andy2508 said:

Thanks for the quick replies. Admittedly I’m not overly savvy with these things. I’ve looked at his paperwork and it looks like he ‘purchased’ the annuity in Nov 2013 for X amount and he still has around 30% of this amount ‘available’. I think I’m resigned to the fact he will be unable to get a lump sum, it’s now just trying to explain this to him! 

Do you mean he had a fund of say £150k and bought an annuity using £120k, leaving £30k unaccounted for?

If that's the case could the figures be 75/25 rather than 70/30?

That could mean he took a 25% TFLS at the time and the money is already in his bank account.  And has been spent?

grumbler

Dazed_and_C0nfused said:

Andy2508 said:

Hi all, I’m hoping someone could help me regarding an annuity. My grandad took out an annuity almost 10 years ago, and has been receiving money from this since. Unfortunately he has recently been diagnosed with cancer and isn’t fit enough to undergo treatment. He has a substantial amount left in the annuity in which he’d like to take out to enjoy the money whilst he can, however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

I’m just wondering if anyone on here who understands these things a bit more could confirm this is the case, or if not what I can do for him going forward? 

Thanks very much 

In return Aviva have agreed to pay him £x per month/year, probably for the rest of his life but possibly for a fixed period.

Typically, it's the former. Otherwise, indeed, Aviva would owe some money if the policy holder dies before the fixed period ends.

It's sort of insurance policy, i.e. involves probabilities. A policy holder is better off (wins) if they live longer than Aviva expected. Otherwise Aviva win.

dunstonh

He has a substantial amount left in the annuity

If he bought a lifetime annuity, then there is nothing left.   You buy a lifetime income in exchange for the lump sum you pay for it.  That money is spent.

If he bought a fixed term annuity (more niche and extremely less common) then there will be a return on expiry but nothing until then.

 however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

This makes it sound like a lifetime annuity.    Death benefits will depend on the options he selected to include when he bought the annuity.  This could be 100% spouse (so it continues for the life of him and his wife) or return of unpaid income (e.g. if purchase price was £100k and the annuity paid out £40k over the years, then £60k would be paid out on death).  There are other variations such as minimum payment period.   Nowadays, you can have upto 30 year gurarantees of payment.  However, 10 years ago, legislation limited it to either 5 or 10 years.

 I’ve looked at his paperwork and it looks like he ‘purchased’ the annuity in Nov 2013 for X amount and he still has around 30% of this amount ‘available’. Partial purchases from a single product were not common 10 years ago (it is more common today).  It was usually all or nothing back then.   He would have taken the 25% tax free cash up front as a lump sum and the 75% part would buy the annuity.  There would be nothing left in most cases.   

CliveOfIndia

grumbler said:

Dazed_and_C0nfused said:

Andy2508 said:

Hi all, I’m hoping someone could help me regarding an annuity. My grandad took out an annuity almost 10 years ago, and has been receiving money from this since. Unfortunately he has recently been diagnosed with cancer and isn’t fit enough to undergo treatment. He has a substantial amount left in the annuity in which he’d like to take out to enjoy the money whilst he can, however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

I’m just wondering if anyone on here who understands these things a bit more could confirm this is the case, or if not what I can do for him going forward? 

Thanks very much 

In return Aviva have agreed to pay him £x per month/year, probably for the rest of his life but possibly for a fixed period.

It's sort of insurance policy, i.e. involves probabilities. A policy holder is better off (wins) if they live longer than Aviva expected. Otherwise Aviva win.

I think this puts it very succinctly.

OP, yes, a typical annuity is really very similar to an insurance policy.  Think of your house insurance - let's say you pay £400 a year for your insurance premiums.  If you never make a claim, that's £400 you've lost.  But if your house burns to the ground and the insurance company pays out £300,000 to rebuild it and replace all your contents, it's money well spent.

That's perhaps over-simplifying it a little, but the principle is the same.

Albermarle

then any money left in the account will be lost (I thought this would go on to my grandma).

What can happen is that the annuity conditions could be that on the death of the holder, then a % of the annuity income will be continued to be paid to a spouse ( often 50%). However this has to be agreed when the annuity is set up, and an annuity with this condition will cost more/pay a smaller income in the first place.

Unfortunately many people buying an annuity, just go for the highest initial income, where there is no spousal provision.

All these issues should have been explained to him at the time of buying the annuity. Maybe they were not, and you might have some kind of case for compensation. However with a company like Aviva this is unlikely, and probably they did provide the info and he either did not read it, or understand it.

DullGreyGuy

CliveOfIndia said:

grumbler said:

Dazed_and_C0nfused said:

Andy2508 said:

Hi all, I’m hoping someone could help me regarding an annuity. My grandad took out an annuity almost 10 years ago, and has been receiving money from this since. Unfortunately he has recently been diagnosed with cancer and isn’t fit enough to undergo treatment. He has a substantial amount left in the annuity in which he’d like to take out to enjoy the money whilst he can, however Aviva have informed us that this isn’t possible and if anything was to happen to my grandad then any money left in the account will be lost (I thought this would go on to my grandma). I have read into this and for my understanding unfortunately this is correct and he can’t access the money. 

I’m just wondering if anyone on here who understands these things a bit more could confirm this is the case, or if not what I can do for him going forward? 

Thanks very much 

In return Aviva have agreed to pay him £x per month/year, probably for the rest of his life but possibly for a fixed period.

It's sort of insurance policy, i.e. involves probabilities. A policy holder is better off (wins) if they live longer than Aviva expected. Otherwise Aviva win.

I think this puts it very succinctly.

OP, yes, a typical annuity is really very similar to an insurance policy.  Think of your house insurance - let's say you pay £400 a year for your insurance premiums.  If you never make a claim, that's £400 you've lost.  But if your house burns to the ground and the insurance company pays out £300,000 to rebuild it and replace all your contents, it's money well spent.

That's perhaps over-simplifying it a little, but the principle is the same.

No, its not "really very similar" to an insurance policy, it is an insurance policy.

Like all insurance you transfer risk to the insurer, in this case its longevity risk (that you live much longer than you anticipate) and potentially inflation risk or such if you index link the benefits.

Annuities however can be hugely more complex than your typical Home or Motor policy, though in particular if its your pension scheme that bought it for you rather than you yourself, and so you can get things like guarantee periods, second life cover, indexation with caps/floors etc etc.

As an insurance policy you have a statutory cooling off period at the beginning but once thats gone you typically have no right of cancellation unless its a trivial policy.

Like all classes of insurance some will put in more than they get out and others will get out more than they pay in. It buys the peace of mind that if you live to 120 you will still be getting a regular income. You need to understand the detail of the policy he bought, at 10 years if he opted for a guarantee period its likely to have expired, you dont say if he has a surviving spouse or if he chose a second life benefit on the policy etc.