State Pension Replacement Bridge - Are limited duration index linked annuities available?

michaels

Like many I suspect I am planning to use a DC pot to 'bridge' until state pension becomes payable.

Currently I model this as current state pension x number of years until SPA/  This obviously assumes that I can invest this sum in a way that will keep up with inflation over a medium time horizon (12 years in my case) - this is doubtful without taking investment risk relating to volatility over this time horizon.

What would be nice is if I could buy an index linked annuity but rather than one that pays out until death, I would want one that only paid out for 12 years.  Are such products available and if so what do they typically cost?

I guess I could build something synthetic using index linked govt bonds but it sounds like hassle and there would be no pooled death risk benefit.

Secret2ndAccount

The product you seek is called a Fixed Term Annuity.  There are a lot of variables, and I haven't seen a web-site where you can just tap in a few numbers and get an online quote. You are going to have to talk to somebody. IFA's claim they can get you a good deal as long as the amount is large enough to cover their fees.

Some people commit all or a large part of their pension to an annuity, but don't want to lock in a constant product for life. Sp you could get a fixed term annuity which returns a large chunk of money at the end. Sounds like that is not what you need, but don't be surprised if they ask you what maturity value you want. In your case, the answer ISTM is zero. Also be prepared to answer what happens if you die. Some products will keep paying out for, say, the first 5 years. Others will pay a spouse's pension. Of course, if it's just you, and the payouts can stop, you get a better monthly payout.

Here's one place to start, but if you google Fixed Term Annuity, there are many more
https://www.lv.com/pensions-retirement/fixed-term-annuities

squirrelpie

You're looking for a fixed-term annuity. I believe inflation protection or indexing is available. Asking an IFA is probably the best way to get competitive quotes.

michaels

Thanks both, wasn't aware you could get index linked fixed term annuities.  I think the best bet would be to completely duplicate the state pension and get separate for self and DW as we have different SPA but on the other hand 80% of the DC is in my name so perhaps a joint policy would help 'transfer' the payment to her (should the worst happen to me). 

Would be nice to find an online calculator just to get ballpark idea of the cost.

Pat38493

I did find calculator last week that allowed you to get an estimated quote on a fixed term annuity (not inflation linked) and it did say that you have to contact them if you want a quote for an inflation linked fixed term annuity.

I've also read many times on this board that this is one of the areas where it may make sense to use an IFA even if just for this one project, as they can often get better rates that will pay for their own fees.

I have to say though that in spite of all the talk of annuities being much better now (at least lifetime ones), the quote it gave me didn't look that great - it was barely above the minimum safe withdrawal rate on a historical simulation of the same scenario, and that's without even any indexing.  Therefore I would need something significantly better if I was going to consider it, especially when you consider you are potentially giving up a lot of upside if you get a good sequence of returns.

Marcon

Try https://www.retirementline.co.uk/annuities/compare-annuity-types/fixed-term-annuity/

You might want to put in an email address and mobile number you keep for just this sort of thing, to avoid possible 'follow up' you might not want!

westv

Marcon said:

Try https://www.retirementline.co.uk/annuities/compare-annuity-types/fixed-term-annuity/

You might want to put in an email address and mobile number you keep for just this sort of thing, to avoid possible 'follow up' you might not want!

Or just make up random numbers and email address.

michaels

Marcon said:

Try https://www.retirementline.co.uk/annuities/compare-annuity-types/fixed-term-annuity/

You might want to put in an email address and mobile number you keep for just this sort of thing, to avoid possible 'follow up' you might not want!

Tried that but couldn't find any way of telling it I wanted an index linked fixed term annuity?

My phone number is always 01234 567890 - can I apologise snow if that is your number...

zagfles

michaels said:

Like many I suspect I am planning to use a DC pot to 'bridge' until state pension becomes payable.

Currently I model this as current state pension x number of years until SPA/  This obviously assumes that I can invest this sum in a way that will keep up with inflation over a medium time horizon (12 years in my case) - this is doubtful without taking investment risk relating to volatility over this time horizon.

What would be nice is if I could buy an index linked annuity but rather than one that pays out until death, I would want one that only paid out for 12 years.  Are such products available and if so what do they typically cost?

I guess I could build something synthetic using index linked govt bonds but it sounds like hassle and there would be no pooled death risk benefit.

It's quite easy to do this using index linked gilts, and as yields are now positive it'll guarantee a return a bit above inflation. Maturity dates are a bit random but usually around a year or so apart, if you're handy with a spreadsheet you can work out how much you need to buy of each so it lasts until the next one matures.

You don't get the pooled death risk but if it's for pre SPA and you want spouse protection, the risk is fairly low that you'd both die before SPA. Not sure that cancel out the profit/overheads of the annuity provider plus any IFA fee or broker commission.

It's worth bearing in mind anyway if you can't find a good value short term annuity. If you can't get a fixed term index linked annuity costing less than the required annual income x the term, it's definitely better to do it yourself with IL gilts.