Asked to purchase an immediate annuity at age 55 but option 1 or option 2 ? Advise needed please !

s2020x

xylophone said:

 if you transferred to another provider. 

Other posters have suggested this but it would appear that the rules of the scheme do not permit?

 I have also spoke to my employer many times. As said, its either option 1 or 2 due to the rules of my pension. No flex. I have to get an immediate annuity. I am ok with this.

Presumably this is because the DC is inextricably linked with the DB?

'Correct' to both questions Xylophone. It must be an immediate annuity. I am actually very grateful that I 'could' still get a reasonable amount of money out of this. I just hope the annuity rates hold up in the next couple of years when I turn 55!

I think drawdown has benefits especially when being able to hand down the pot to the family but in the early years of my early retirement, I would get alot less money ....based on quotes at age 55, £3000 level annuity vs £2200 RPI annuity vs 1850 drawdown SWR per month.

s2020x

Qyburn said:

If you're going for 100% joint, do you need the guarantee?

Do you mean I should consider the "value" option rather than the "guarantee"?

How would the policy work if you take a joint policy that wasn't guaranteed? I was just trying to ensure my wife continues to get the same annuity as I had upto the maximum years permitted which is 30 years from the policy start.

Thanks in advance for your explanation.

dunstonh

Presumably this is because the DC is inextricably linked with the DB?

Many occupational schemes will unlink the DC pension. Indeed, I have just completed the transfer on such a case this week (DB pension retained but the DC pension transferred).   So, there shouldn't be an assumption and I would want it in writing that they will not allow a transfer out of the DC pension.

How would the policy work if you take a joint policy that wasn't guaranteed? I was just trying to ensure my wife continues to get the same annuity as I had upto the maximum years permitted which is 30 years from the policy start.

A 100% spouse annuity will pay in full until second death.

Guarantee periods are more useful with single-life annuities.  Value protect is another popular option if you are thinking about legacy and can be more beneficial than a long-term guarantee.

Pat38493

dunstonh said:

Presumably this is because the DC is inextricably linked with the DB?

Many occupational schemes will unlink the DC pension. Indeed, I have just completed the transfer on such a case this week (DB pension retained but the DC pension transferred).   So, there shouldn't be an assumption and I would want it in writing that they will not allow a transfer out of the DC pension.

How would the policy work if you take a joint policy that wasn't guaranteed? I was just trying to ensure my wife continues to get the same annuity as I had upto the maximum years permitted which is 30 years from the policy start.

A 100% spouse annuity will pay in full until second death.

Guarantee periods are more useful with single-life annuities.  Value protect is another popular option if you are thinking about legacy and can be more beneficial than a long-term guarantee.

This is what I was also thinking - if you are remotely interested in drawdown options, I would suggest that you ask your pension provider for a written confirmation that they will not allow the DC fund to be transferred out and the reasons why, and maybe request a CETV valuation of the entire pension for good measure.

HappyHarry

Who is your employer and why are you taking their word for it regarding what you can do with your pension?  It would be surprising if you can’t transfer the DC part to another provider and get far more options.

OldScientist

Albermarle said:

Audaxer said:

s2020x said:

Regarding the drawdown you mentioned as a comparison, and the SWR  at £13500 (or £1125 pm) on the 450K pot, add the DB £731 and I get a total of £1850 per month

Regarding drawdown, £13,500 annually from a £450k pot is 3% which seems a bit on the cautious side. In the UK it is usually said that 3.5% plus inflation each year is considered pretty safe.

You have said drawdown is not an option on your current pension, but as others have said it could be an option if you transferred to another provider. If you have totally discounted drawdown that is fair enough, but just something to consider if you did want to transfer to another provider. 

I think the 3% was based on retiring at 55.

According to ONS estimates, for a couple both aged 55 there is a 10% chance of at least of them reaching an age of 100, i.e. a planning horizon of 40-45 years (rather than the 30 year horizon usually assumed in 'safe' withdrawal rates). With stock allocations of 50%-75%, this translates into a 'safe' withdrawal rate of 2.3%-2.8% (see https://www.2020financial.co.uk/pension-drawdown-calculator/ ). This ignores fees and uses UK assets, so add another 20 or so basis points for the more usual global portfolio (see https://www.advisorperspectives.com/articles/2014/03/04/does-international-diversification-improve-safe-withdrawal-rates ). In other words, provided asset allocation isn't too cautious, 3% or maybe a smidgen below is probably good enough for planning purposes!

Pat38493

OldScientist said:

Albermarle said:

Audaxer said:

s2020x said:

Regarding the drawdown you mentioned as a comparison, and the SWR  at £13500 (or £1125 pm) on the 450K pot, add the DB £731 and I get a total of £1850 per month

Regarding drawdown, £13,500 annually from a £450k pot is 3% which seems a bit on the cautious side. In the UK it is usually said that 3.5% plus inflation each year is considered pretty safe.

You have said drawdown is not an option on your current pension, but as others have said it could be an option if you transferred to another provider. If you have totally discounted drawdown that is fair enough, but just something to consider if you did want to transfer to another provider. 

I think the 3% was based on retiring at 55.

According to ONS estimates, for a couple both aged 55 there is a 10% chance of at least of them reaching an age of 100, i.e. a planning horizon of 40-45 years (rather than the 30 year horizon usually assumed in 'safe' withdrawal rates). With stock allocations of 50%-75%, this translates into a 'safe' withdrawal rate of 2.3%-2.8% (see https://www.2020financial.co.uk/pension-drawdown-calculator/ ). This ignores fees and uses UK assets, so add another 20 or so basis points for the more usual global portfolio (see https://www.advisorperspectives.com/articles/2014/03/04/does-international-diversification-improve-safe-withdrawal-rates ). In other words, provided asset allocation isn't too cautious, 3% or maybe a smidgen below is probably good enough for planning purposes!

Also just to be clear that those are constant inflation adjusted withdrawal rates on the fund - this doesn't take into account if you have a DB pension and state pension that will start later that will reduce the withdrawal rate in later years.

bluenose1

In view of the sums if I were in your position s2020x I would have no hesitation in asking dunstonh if he would consider being my IFA. 

It is the likes of his advice, xylophone, Marcon, and several others who have given me a better understanding of pensions than I have ever had.
With the amount involved important to make the decision knowing all the facts.

s2020x

dunstonh said:

A 100% spouse annuity will pay in full until second death.

Guarantee periods are more useful with single-life annuities.  Value protect is another popular option if you are thinking about legacy and can be more beneficial than a long-term guarantee.

Thank you for the explanation Dunstonh. I think a 100% spouse annuity is what I would go for.

Just to summarise the excellent replies from the other forum members, the 3% drawdown would not appeal to me even if it was available, as it would not fund the lifestyle that I want in my early retirement from aged 55 to 68 which is travel and maybe attending events.

The annuity approach gives me £3000 per month as opposed to £1850 per month drawdown. As such, it would fund the travel to visit my family in the US and NZ/AUS. Drawdown would leave me with a similar income as I have now and not permit the things I want to do in early retirement.

dunstonh

Just to summarise the excellent replies from the other forum members, the 3% drawdown would not appeal to me even if it was available, as it would not fund the lifestyle that I want in my early retirement from aged 55 to 68 which is travel and maybe attending events.

Have you modelled funding the gap?  That is a common method for those using drawdown.  i.e. draw more to fund that gap until the later secure income kicks in and then reduce it.