Have we reached peak annuity rates?

flaneurs_lobster

Bimbly said:

I wouldn't like to advise you on whether to get your annuity now or later, but I certainly understand the need to get it "sorted" and so you don't have to worry about it any more. If you buy your annuity now, remember to stop looking at rates afterwards!

I'm in the process of evaluating annuities (and other options) and I haven't even considered what could be the worst case of "Buyer's Remorse" you are ever likely to suffer.

I get upset when the mobile phone I've just bought appears the next week for £30 less.......

sgx2000

I am currenty looking at Single RPI Annuities potentially with a guaranty period.
My wife is 17 years younger and building her own pension... 
So it would really reduce my pension if I opted for joint annuity.

Fortunately I already have a defered DB pension that started paying at 60
I am currently still working but would like to retire.....

My workplace pension,  with Aviva,  is only £77k ... ((still down about 7k  ...thanks Liz Tuss)
And 'lifestyled'....  grrr.... thanks Aviva   (little point in moving it now)

So I hopefully cant screw choices up too badly

But, obviously, choosing anuity now means I will be taxed on it at 20% on it

Bimbly

sgx2000 said:

But, obviously, choosing anuity now means I will be taxed on it at 20% on it

Can't you buy one now and set it to start paying at a future date? ie, when you retire? So at least you get your personal tax free allowance. Certainly, when you type illustrative figures into the money helper annuity calculator, it asks you when you want it to start.

sgx2000

Bimbly said:

sgx2000 said:

But, obviously, choosing anuity now means I will be taxed on it at 20% on it

Can't you buy one now and set it to start paying at a future date? ie, when you retire? So at least you get your personal tax free allowance. Certainly, when you type illustrative figures into the money helper annuity calculator, it asks you when you want it to start.

Good point...

The longer I spend looking into pension options, then more I realise ther are never black or white options....
Just lots of grey.?.

RogerPensionGuy

I've just been digging around looking for an annuity rate thread and this thread popped up as suitable. 

I'm on the verge of buying an annuity or two, possibly also buying a PLA as currently the rates have made them feel more comfortable in my head and the SIPP IHT changes have added to my feelings that annuities are a more sensible option now.

I'm looking in to my crystal ball now wondering if annuity rates are likely going up, down or flat these next 2 to 6 months, unfortunately my crystal ball is very merkey.

If anyone has a less merkey crystal ball, please post what you see or just a guess will be nice please.

Links below for supplementary information. 

***

https://www.sharingpensions.co.uk/annuity-rates-chart-latest.htm

***

Annuity rates reach highest levels in two decades – but half of over 50’s still don’t fully understand how annuities work https://share.google/PZNdKEqg0JBoljGpn

***

https://www.sharingpensions.co.uk/annuity_rates.htm#:~:text=The latest annuity rates would,5.29% on 9 April 2025.

OldScientist

Bimbly said:

sgx2000 said:

But, obviously, choosing anuity now means I will be taxed on it at 20% on it

Can't you buy one now and set it to start paying at a future date? ie, when you retire? So at least you get your personal tax free allowance. Certainly, when you type illustrative figures into the money helper annuity calculator, it asks you when you want it to start.

Are deferred annuities, in the sense pay a single premium now and start taking income 5 or 10 years later actually now available in the UK? There is some conflicting information out there (some sites imply yes and some no) and it would be useful to hear from some of the IFAs on the board. I suspect it would have been a niche product a few years ago when payout rates were very low.

I note that, the last time I looked, the moneyhelper site appeared to give the payout rate for different dates solely based on age and current rates - i.e., the payout rate for a 65yo taken in 2025 is the same as that for a 65yo taken in 2030 which is not the same as a deferred annuity.

RogerPensionGuy

Thanks for previous post above OldScientist.

I had enquired many times these last few years and always been told they don't do deffered annuities, but on researching now, it appears they do. 

I was always told payments start no longer than 3 months from doing the paperwork. 

The link below is a nice read. 

***

https://www.legalandgeneral.com/retirement/pension-annuity/guides/types-of-annuity/?hl=en-GB

dunstonh

I'm looking in to my crystal ball now wondering if annuity rates are likely going up, down or flat these next 2 to 6 months, unfortunately my crystal ball is very merkey.

People in late 2023 thought they were at peak.   However, they fell back and then rose again, hitting new highs just a couple of weeks ago.

Honestly you cannot guess.

Currently, gilt yields are high because the UK Government is suffering a moron premium.    If you believe the Government is likely to take action to significantly reduce spending and not increase taxes that harm growth , then gilt yields will fall and annuity rates with it.       However, if you feel the Government isn't going to  reduce the deficit and not increase taxes that harm growth then gilt yields will remain in the ballpark or get higher.

Effectively, until the Government loses the moron premium, they will remain high.

OldScientist

@RogerPensionGuy Thanks for that - I've seen similar text elsewhere (it probably all comes from the same source!). I suspect that when annuity rates were low no-one wanted to lock them in, whereas now they have returned to more typical values, people are interested in locking in current rates.

Quoting from the L&G page...
"Before your payments begin, your provider will probably invest your money. You’ll get an agreed rate of interest on it, with the exact amount depending on your age and how much money you’ve paid in. And of course if your provider’s investment strategy works out its value could grow. Though of course, as with any investment, there’s always the risk that its value could go down too."

My understanding (from what I've read about the equivalent US deferred annuity, e.g., see https://retirementresearcher.com/securing-longevity-insurance-through-income-annuities/ ) was that the payout rate, and therefore income, was determined at purchase (effectively based on x years of known gilt growth minus fees). The caveat in the last sentence I've quoted above implies that the actual income might not be what is expected at purchase which would rather defeat the point (although I think that sentence may only refer to variable rather than fixed rates).

Self-deferral is possible using individual gilts or bond funds roughly duration matched to the annuity (essentially reproducing what lifestyling for annuities typically does by gradually moving investments into a mix of cash and a long-term gilt fund) but is not guaranteed to provide exactly the expected income after the delay (initial modelling suggests that getting the income within 10% was possible most of the time historically except during periods where yields changed a lot, e.g., mid-1970s to mid 80s).

Nebulous2

RogerPensionGuy said:

I've just been digging around looking for an annuity rate thread and this thread popped up as suitable. 

I'm on the verge of buying an annuity or two, possibly also buying a PLA as currently the rates have made them feel more comfortable in my head and the SIPP IHT changes have added to my feelings that annuities are a more sensible option now.

I'm looking in to my crystal ball now wondering if annuity rates are likely going up, down or flat these next 2 to 6 months, unfortunately my crystal ball is very merkey.

If anyone has a less merkey crystal ball, please post what you see or just a guess will be nice please.

Links below for supplementary information. 

***

https://www.sharingpensions.co.uk/annuity-rates-chart-latest.htm

***

Annuity rates reach highest levels in two decades – but half of over 50’s still don’t fully understand how annuities work https://share.google/PZNdKEqg0JBoljGpn

***

https://www.sharingpensions.co.uk/annuity_rates.htm#:~:text=The latest annuity rates would,5.29% on 9 April 2025.

People talk about efficient markets being priced in line with what is known, and that you can't beat the market consistently. So any ball- gazing any of us produces is likely to be an errant guess. 

Having said that - and looking at Dunstonh's comments, I'm expecting the budget to prioritise reassuring the market and balancing the books. Much of that will come from tax rather than cutting expenditure. 

That will mean a rise in the price of gilts initially, and a drop in annuity rates, though how long it will last I've no idea. It could be a temporary blip, or it could be the beginning of a longer-term revival in gilt pricing, with a drop-off in rates. 

I bought some gilts earlier this year and I'm locked into 5.3% for 20 years.  I'm not really caring what happens. I'm happy to let it keep running for the long-term.