Annuity’s Becoming More Attractive?

Malthusian

OldScientist said:

One way round the 'only 50%' on death is to purchase two annuities (one each, possibly with different insurance companies) - then the surviving spouse has 75% of the income (assuming purchases of about the same amount) - although a long guarantee period largely obviates the need for this (at least until the guarantee period has expired).

Er, why not just buy a 75% joint life annuity?

OldScientist

Malthusian said:

OldScientist said:

One way round the 'only 50%' on death is to purchase two annuities (one each, possibly with different insurance companies) - then the surviving spouse has 75% of the income (assuming purchases of about the same amount) - although a long guarantee period largely obviates the need for this (at least until the guarantee period has expired).

Er, why not just buy a 75% joint life annuity?

For several reasons:
- The 75% annuity is asymmetric - if the annuitant dies, the survivor receives 75%, while if the beneficiary dies then the annuitant continues to receive 100%. For two 50% annuities, if either annuitant dies, the other will get 75% of the original pension.
- The payout rate for two annuities with 50% benefits will be higher than a single 75% annuity.
- Diversification in insurance companies (although I note that the risk in the UK has been historically non-existent(?) and the FSCS scheme current covers eligible annuities in the event of an insurance company default).

FIREDreamer

OldScientist said:

FIREDreamer said:

westv said:

Rates are quite good.
I'm 60 and the HL calculator shows £27,223 using a £800k pot (my real one is half that), 50% spouse, nil guarantee period. So 3.4%
£24,175 if 100& spouse.

My pot isn’t £800k either, I just put that value in to minimise any fixed policy fees allowed for in the annuity.

Using the 4% rule (sic) you get £32,000 pa with no spouse reduction. 

The annuity option is tempting though.

If the annuity you get from your pot plus any DB is enough for a comfortable retirement, do you leave the table (buy the annuity and relax) or carry on playing (drawdown) and maybe still working and contributing?

How many “one more year”s do you do?

As mentioned above, the '4% rule' applied for a 30 year retirement if you were based in the US. Over the last century, the UK has tended to have higher inflation than the US hence, at least partly, why our equivalent 'rule' was more like 3% (for a 30 year horizon) and less than this for longer periods.

If your inflation protected floor, i.e. state pension, DB pensions, and (potentially) annuities is sufficient for your lifestyle requirements, then why not retire?

If you are struggling to purchase an annuity (because it is a large amount of money to potentially 'throw away') in one go there are several alternatives:
1) As discussed above, use a lengthy guarantee period (you or your beneficiaries will get a portion of the money back)
2) Partly annuitise now - if then required, purchase others at later dates (although there are risks with delaying purchase)

One way round the 'only 50%' on death is to purchase two annuities (one each, possibly with different insurance companies) - then the surviving spouse has 75% of the income (assuming purchases of about the same amount) - although a long guarantee period largely obviates the need for this (at least until the guarantee period has expired).

However, complete annuitisation is likely to be unwise too since it leaves nothing for large one-off payments (you might never have to touch the pot, but it is nice to know it is there). FWIW, all our current lifestyle needs are largely satisfied by a DB pension but we still have a drawdown pot for a relatively small amount of discretionary spending together with an emergency fund. Once our state pensions kick in it is unlikely we will need any further drawdown and we can leave the remaining pot to (hopefully) grow for legacy purposes.

Two separate annuities not an option as i am the only one with a DC pension and my wife is a stay at home mother.

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …

(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

EDIT: Stocks and shares ISA available for passive income and lump sum requirements once button is pressed.

dunstonh

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …
(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

1 - context is needed.  The theoretical SWR is a worst-case scenario.     For most periods, the potential withdrawal rate will be much higher.   
2 - That isn't going to happen.  Contribution relief could be at risk but accessing your pension

michaels

dunstonh said:

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …
(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

1 - context is needed.  The theoretical SWR is a worst-case scenario.     For most periods, the potential withdrawal rate will be much higher.   
2 - That isn't going to happen.  Contribution relief could be at risk but accessing your pension

Not at all, SWR may still be overoptimistic due to the limited historical period and because the future may not look like the past.  SWR is just as likely a best case  and you wold certainly not know that you could safely spend more than SWR until well into your retirement.

OldScientist

FIREDreamer said:

OldScientist said:

FIREDreamer said:

westv said:

Rates are quite good.
I'm 60 and the HL calculator shows £27,223 using a £800k pot (my real one is half that), 50% spouse, nil guarantee period. So 3.4%
£24,175 if 100& spouse.

My pot isn’t £800k either, I just put that value in to minimise any fixed policy fees allowed for in the annuity.

Using the 4% rule (sic) you get £32,000 pa with no spouse reduction. 

The annuity option is tempting though.

If the annuity you get from your pot plus any DB is enough for a comfortable retirement, do you leave the table (buy the annuity and relax) or carry on playing (drawdown) and maybe still working and contributing?

How many “one more year”s do you do?

As mentioned above, the '4% rule' applied for a 30 year retirement if you were based in the US. Over the last century, the UK has tended to have higher inflation than the US hence, at least partly, why our equivalent 'rule' was more like 3% (for a 30 year horizon) and less than this for longer periods.

If your inflation protected floor, i.e. state pension, DB pensions, and (potentially) annuities is sufficient for your lifestyle requirements, then why not retire?

If you are struggling to purchase an annuity (because it is a large amount of money to potentially 'throw away') in one go there are several alternatives:
1) As discussed above, use a lengthy guarantee period (you or your beneficiaries will get a portion of the money back)
2) Partly annuitise now - if then required, purchase others at later dates (although there are risks with delaying purchase)

One way round the 'only 50%' on death is to purchase two annuities (one each, possibly with different insurance companies) - then the surviving spouse has 75% of the income (assuming purchases of about the same amount) - although a long guarantee period largely obviates the need for this (at least until the guarantee period has expired).

However, complete annuitisation is likely to be unwise too since it leaves nothing for large one-off payments (you might never have to touch the pot, but it is nice to know it is there). FWIW, all our current lifestyle needs are largely satisfied by a DB pension but we still have a drawdown pot for a relatively small amount of discretionary spending together with an emergency fund. Once our state pensions kick in it is unlikely we will need any further drawdown and we can leave the remaining pot to (hopefully) grow for legacy purposes.

Two separate annuities not an option as i am the only one with a DC pension and my wife is a stay at home mother.

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …

(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

EDIT: Stocks and shares ISA available for passive income and lump sum requirements once button is pressed.

2) On the political side, you could very well be alive for a long time - governments will come and go - who knows what will happen!

1) One question you might ask yourself (if you haven't already) is how much income do you need to support your preferred lifestyle? Consequently, calculate how much you need in excess of your future state pensions and your capped DB pensions (depending on the level of the cap, i.e., 2.5% or 5% are common, based on past UK inflation levels a reasonable rule of thumb might be to assume 50% to 80% of their current value in the long term) and then annuitise enough to bring your income up to the required level.

For example, if your SP and DB pensions are equivalent to 5% of your current portfolio value and, overall you need to support an expenditure of 7% of your portfolio value to sustain your required lifestyle then you would annuitise (7-5)/3.3~60% of your portfolio (assuming an annuity payout rate of 3.3%, i.e. the quote you had with a 30 year guarantee) leaving the remaining 40% for ad-hoc spending, legacy, and building a bridge to state pension age. Obviously, your actual numbers will be different to these.

RogerPensionGuy

michaels said:

dunstonh said:

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …
(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

1 - context is needed.  The theoretical SWR is a worst-case scenario.     For most periods, the potential withdrawal rate will be much higher.   
2 - That isn't going to happen.  Contribution relief could be at risk but accessing your pension

Not at all, SWR may still be overoptimistic due to the limited historical period and because the future may not look like the past.  SWR is just as likely a best case  and you wold certainly not know that you could safely spend more than SWR until well into your retirement.

I like this last post, it's very similar to the phrase we so often see, past performance may not be a good guide for future performance or variations of this sentiment.

The future could look very different to what we think and hope maybe around the corner, it's hard to fully understand how much longer people will live after paid employment in the next few decades and how healthy and lifestyle will be.

We can all read average stockmarkets groath are say 6%(6 just a figure for example) and a SWR(safe withdrawal rate) of say 4%( 4 just a figure) and we read about sequencing of returns and how to best manage it.

I'm normally always in the glass half full camp and plan accordingly. Am intending to just feed off my SIPP as an extra income I don't essentially need and my main sources of income will be a DB scheme, SP(state pension) and possibly an annuity purchased from my SIPP(self invested personal pension)

I'm currently on the fence now about buying an annuity and in preparation I've put 30% of my standard SIPP units in to the cash money markets, so am happy using this cash to buy an annuity or if a monster stockmarket crash pops along, maybe I'll just put back to a standard worldwide unit.

I know I'm lucky having a few good streams of income, but I always remembered reading years ago that not putting all eggs in the same basket is good and even better having many multiple sources of income. 

Linton

FIREDreamer said:

OldScientist said:

FIREDreamer said:

westv said:

Rates are quite good.
I'm 60 and the HL calculator shows £27,223 using a £800k pot (my real one is half that), 50% spouse, nil guarantee period. So 3.4%
£24,175 if 100& spouse.

My pot isn’t £800k either, I just put that value in to minimise any fixed policy fees allowed for in the annuity.

Using the 4% rule (sic) you get £32,000 pa with no spouse reduction. 

The annuity option is tempting though.

If the annuity you get from your pot plus any DB is enough for a comfortable retirement, do you leave the table (buy the annuity and relax) or carry on playing (drawdown) and maybe still working and contributing?

How many “one more year”s do you do?

As mentioned above, the '4% rule' applied for a 30 year retirement if you were based in the US. Over the last century, the UK has tended to have higher inflation than the US hence, at least partly, why our equivalent 'rule' was more like 3% (for a 30 year horizon) and less than this for longer periods.

If your inflation protected floor, i.e. state pension, DB pensions, and (potentially) annuities is sufficient for your lifestyle requirements, then why not retire?

If you are struggling to purchase an annuity (because it is a large amount of money to potentially 'throw away') in one go there are several alternatives:
1) As discussed above, use a lengthy guarantee period (you or your beneficiaries will get a portion of the money back)
2) Partly annuitise now - if then required, purchase others at later dates (although there are risks with delaying purchase)

One way round the 'only 50%' on death is to purchase two annuities (one each, possibly with different insurance companies) - then the surviving spouse has 75% of the income (assuming purchases of about the same amount) - although a long guarantee period largely obviates the need for this (at least until the guarantee period has expired).

However, complete annuitisation is likely to be unwise too since it leaves nothing for large one-off payments (you might never have to touch the pot, but it is nice to know it is there). FWIW, all our current lifestyle needs are largely satisfied by a DB pension but we still have a drawdown pot for a relatively small amount of discretionary spending together with an emergency fund. Once our state pensions kick in it is unlikely we will need any further drawdown and we can leave the remaining pot to (hopefully) grow for legacy purposes.

Two separate annuities not an option as i am the only one with a DC pension and my wife is a stay at home mother.

Is anyone of the opinion that full annuitisation is a better option at this time in the political cycle given that …

(1) rates dont look too bad compared to a theoretical safe withdrawal rate, and

(2) given that the next government will be of a different hue and an annuity is harder to pilfer than a private pension pot?

EDIT: Stocks and shares ISA available for passive income and lump sum requirements once button is pressed.

You should not be worried about political cycles in deciding your retirement plans as the plans will need to provide for your well-being for the next perhaps 30 years.  So the important thing is that they are resilient, giving protection as far as practical and necessary against any eventuality barring the end of the world as we know it.

 "pilfering private pension pots" is one of the very least likely eventualities, close to the eventualities that you cannot protect against - eg confiscation of all private assets.

Annuitisation is worth considering now solely because rates are higher than recently and are as close to absolute guarantees as you can get.  Current politics is irrelevent.

NedS

OldScientist said:

1) One question you might ask yourself (if you haven't already) is how much income do you need to support your preferred lifestyle? Consequently, calculate how much you need in excess of your future state pensions and your capped DB pensions (depending on the level of the cap, i.e., 2.5% or 5% are common, based on past UK inflation levels a reasonable rule of thumb might be to assume 50% to 80% of their current value in the long term) and then annuitise enough to bring your income up to the required level.

That isn't always as easy as it sounds.

20 Years ago I had no idea I would need fibre broadband, or an iPhone, or a monthly subscription to Sky to watch F1 or a monthly subscription to Netflix because there's nothing worth watching on terrestrial TV, or that half the features in my new BMW are now based on a monthly subscription model (and a heated steering wheel is now considered essential in winter) [I'm being facetious here as I don't really own a BMW!]. In fact, over half of my monthly direct debits are for things I had no clue I would need 20 years ago. Consequently I also presume I'll equally have no idea what other costs I may wish to incur 20 years from now. So can I simply assume that my current costs will rise with inflation and that will be sufficient?

westv

There's not really much else you can do apart from guess a number and doubling it maybe.