Have we reached peak annuity rates?

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82012313#Comment_82012313

Which doesn't achieve a lot, why not just buy gilts to hedge annuity rates. A proper deferred annuity would be a very useful product, you can get them in the US, see Longevity Annuity | Investor.gov where you buy an annuity say at 65 which only starts to pay at say 85 and you get nothing if you die before 85, as such it's far cheaper than a normal annuity. So it could be used as "longevity insurance" for someone in drawdown, they can drawdown based on a fixed end date rather than an unknown date of death, and live off the annuity after that date.

I guess the problem in this country is if insurance companies or IFAs started offering such products you'd get the inevitable chancers who'd claim the product was mis-sold like you do with stuff like home reversion loans, particularly from relatives of annuitants who died before the age it started.

RogerPensionGuy

Reference deferred annuities, I liked that idea, but I also wanted a hands off arrangement and I wanted to enjoy any groat and just say make it pay out at 75Y or 80Y to have bulky income if I survive.

Having an annuity inside a SIPP isn't it want I wanted.

So I'm just doing a bukly annuity currently that's paying monthly, yearly in arrears was considered, so not purfect, but that's what I picked.

The link below actually says deffered annuities are a fair idea, very common in the USA, but not in the UK unfortunately.

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https://youtu.be/SlLH6Vymplg?si=eO_AyPg8dccW64X3

OldScientist

FWIW, my guess is that UK insurance companies don't currently offer deferred annuities because there has been little or no market for them. While deferred annuities are available in the US, inflation protected annuities are no longer available there. Given the choice between one or the other, I think I'd prefer having the RPI version available.

Hedging through duration matching to individual gilts or gilt funds with different durations can be done, but it is only an approximate hedge - from some modelling I've done, historically, most of the time the realised income was within about 20% of the expected income, but sometimes the variation was larger.

A more complex alternative is to build a deferred ILG ladder (either for income or exchange to annuity). For example, according to the lategenxer tool, a 15 year ILG ladder deferred for 20 years, i.e., for a 65yo payments would start at 85yo and finish at 100yo, currently has a payout rate of 11.3%, although the coupons in the deferral stage would need to be handled (reinvested or saved). At 85yo, after comparing the income, this could be exchanged for an annuity, but there is no guarantee that the annuity income would be higher.

LHW99

It appears there are Deferred Care Needs annuities, if not normal ones

https://www.justadviser.com/products/care-funding/our-care-plans/

phlebas192

Interestingly, the Moneyhelper website will provide indicative quotes for deferred annuities from the usual players (Aviva, Std Life, etc). eg I just tried it and it gave me several for one starting in 2036. Whether they are actually available is a different matter!

https://comparison.moneyhelper.org.uk/en/guaranteed-income-for-life/your-details

michaels

https://forums.moneysavingexpert.com/discussion/comment/82013169#Comment_82013169

So I just tried this to see whether taking my DB early is reasonable value. SO an annuity at 67 equal in value to my DB would cost 600k.

If I use this sum to buy an annuity now, 11 years earlier, I will get about 75% as much. With my pension, if I take it 11 years early I will lose about 40%. Not sure if that means the pension reduction is too high or the deferred annuity is too low….

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82013169#Comment_82013169

If I understand what the site is doing correctly, I think it is showing the income for an immediate annuity bought in 2036, i.e., at the age you will be in 2036 assuming the rates are the same as now, not a deferred annuity (i.e., one bought now, but for which the income does not start until 2036).

For example, entering the details for a 65yo receiving the income in 10 years time into the tool gives the same income as entering the same details for a 75yo receiving the income now.

The income for a deferred annuity would include the growth over the first 10 years and an increase due to mortality over that 10 years (roughly 25% for a 65yo old male deferring to 75yo).

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82012935#Comment_82012935

A deferred ILG ladder isn't really anywhere near the same thing as a deferred annuity - paying 11.3% at 85 would be far less than you'd get from a deferred annuity - although obviously there would be potential capital to be inherited.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/82014291#Comment_82014291

That makes sense. Well spotted!