Fixed Term Annuity Rates - Does This Look Right?

Bimbly

A fixed term annuity is considered as taking your pension flexibly and will trigger the MPAA, whereas a lifetime annuity does not.

BoxerfanUK said:
I'm not quite sure what you mean?!  This seemed like a way of guaranteeing an income for 5 years without any significant risk to her pot.  Perhaps I am missing something obvious! 

I think what is meant is, if you want Y amount back at the end of the fixed term annuity, why not simply just buy the annuity with X amount, so you don't get any money back at the end of the term, leaving Y in your DC pension.

BoxerfanUK

Bimbly said:

A fixed term annuity is considered as taking your pension flexibly and will trigger the MPAA, whereas a lifetime annuity does not.

BoxerfanUK said:
I'm not quite sure what you mean?!  This seemed like a way of guaranteeing an income for 5 years without any significant risk to her pot.  Perhaps I am missing something obvious! 

I think what is meant is, if you want Y amount back at the end of the fixed term annuity, why not simply just buy the annuity with X amount, so you don't get any money back at the end of the term, leaving Y in your DC pension.

Thanks Bimbly. We are not bothered about MPAA she won't be contributing to a pension any more!

so you mean.... why don't we just use the amount required from the DC pension to buy the required annuity income for the five years and just leave the rest in the pension pot, yes?

I guess I just thought that putting it all in a fixed term annuity and taking out a relatively low income for 5 years was a way of at least getting guaranteed growth of around 5.5% every year over the period on the whole amount.  At the moment one of the main pots has only grown 0.1% in the past 12 months and with current market conditions who knows!!!

GSP

BoxerfanUK said:

Firstly thanks to the OP for asking this question as it has opened mine and my other halves eyes to an alternative to lifetime annuities or DD, so I hope the OP doesn't mind, but I have a couple of questions. 

If you have say, a DC pension pot of 500K and you don't want to take the PCLS straight away...... could you take out a five year fixed term annuity for the full 500K just taking taxable annual income up to your marginal rate of 12570 and then at the end of the 5 years when you get back the maturity sum you put it back into a SIPP and from there take the PCLS either in one go or via UFPLS or Flexi access DD alongside any taxable DD?

Also, if this 500K is made up from 3 different pots with different companies do you have to merge them into one single pot before applying for said annuity or can the annuity provider take a transfer in from 3 separate pots?

Absolutely no problem.
One very important thing I have forgot, or wasn’t available when I keyed in my figures is that I would want a joint option as well for this product, that’s if it was available?
I assume then in the absence of seeing this, results I have been looking will mean income could be nearly halved?

Perhaps income in these are different to ‘normal annuity’s’ as you are receiving a sum back say after 5, 10 years etc however.
Anyone have knowledge on my no nothing attempt on this?
Thanks

GSP

QrizB said:

So you're giving them £670k and receiving £500k back plus £330k of payments?

That's a total gain of £210k over 5 years, 31% total, so just over 5.5% pa.

I’ve still a lot of work to do on this and can see a sizeable excel spreadsheet looming!

My SP kicks in in 5.5 years. There’s tax bands to think about. If we went for this as well, just before we bought this annuity we could take out our whole 25% portion from drawdown which we have been tapping into and reducing for six years now.

Our strategy is not to increase our pension funds, to reduce it actually and enjoy the money (don’t tell the kids that, they’ll get the house anyway!), but also try to protect it as best we can so that it will last to our end alongside SP.

BoxerfanUK

GSP said:

QrizB said:

So you're giving them £670k and receiving £500k back plus £330k of payments?

That's a total gain of £210k over 5 years, 31% total, so just over 5.5% pa.

I’ve still a lot of work to do on this and can see a sizeable excel spreadsheet looming!

My SP kicks in in 5.5 years. There’s tax bands to think about. If we went for this as well, just before we bought this annuity we could take out our whole 25% portion from drawdown which we have been tapping into and reducing for six years now.

Our strategy is not to increase our pension funds, to reduce it actually and enjoy the money (don’t tell the kids that, they’ll get the house anyway!), but also try to protect it as best we can so that it will last to our end alongside SP.

Are you planning to have your other half as a beneficiary for the maturity sum at the end we’re you to die before the fixed term ends?  Also, are you wanting them to continue taking your fixed income to the end of the term should you expire before it?

I’d be interested to see how this affects the figures as I presume it will.

GSP

BoxerfanUK said:

GSP said:

QrizB said:

So you're giving them £670k and receiving £500k back plus £330k of payments?

That's a total gain of £210k over 5 years, 31% total, so just over 5.5% pa.

I’ve still a lot of work to do on this and can see a sizeable excel spreadsheet looming!

My SP kicks in in 5.5 years. There’s tax bands to think about. If we went for this as well, just before we bought this annuity we could take out our whole 25% portion from drawdown which we have been tapping into and reducing for six years now.

Our strategy is not to increase our pension funds, to reduce it actually and enjoy the money (don’t tell the kids that, they’ll get the house anyway!), but also try to protect it as best we can so that it will last to our end alongside SP.

Are you planning to have your other half as a beneficiary for the maturity sum at the end we’re you to die before the fixed term ends?  Also, are you wanting them to continue taking your fixed income to the end of the term should you expire before it?

I’d be interested to see how this affects the figures as I presume it will.

Yes, as there is no other income for her.

Not being able to drill down (except for the high level results given from the website mentioned in my OP), yes I’m ‘interested’ in seeing how much having a beneficiary will reduce the numbers.

From ‘normal’ maturities where more information is available, the reduction did not appear large enough to put me off anyway and hoping it will be the case for fixed term annuity’s.

I’m seeing my IFA in just over a week. As I understand IFA’s are able to access and interrogate sites for many scenarios. It would be easier if I could get access as well as sure there will be a lot of playing around to do on systems before we feel comfortable choosing returns, terms, etc.

BoxerfanUK

GSP said:

BoxerfanUK said:

GSP said:

QrizB said:

So you're giving them £670k and receiving £500k back plus £330k of payments?

That's a total gain of £210k over 5 years, 31% total, so just over 5.5% pa.

I’ve still a lot of work to do on this and can see a sizeable excel spreadsheet looming!

My SP kicks in in 5.5 years. There’s tax bands to think about. If we went for this as well, just before we bought this annuity we could take out our whole 25% portion from drawdown which we have been tapping into and reducing for six years now.

Our strategy is not to increase our pension funds, to reduce it actually and enjoy the money (don’t tell the kids that, they’ll get the house anyway!), but also try to protect it as best we can so that it will last to our end alongside SP.

Are you planning to have your other half as a beneficiary for the maturity sum at the end we’re you to die before the fixed term ends?  Also, are you wanting them to continue taking your fixed income to the end of the term should you expire before it?

I’d be interested to see how this affects the figures as I presume it will.

Yes, as there is no other income for her.

Not being able to drill down (except for the high level results given from the website mentioned in my OP), yes I’m ‘interested’ in seeing how much having a beneficiary will reduce the numbers.

From ‘normal’ maturities where more information is available, the reduction did not appear large enough to put me off anyway and hoping it will be the case for fixed term annuity’s.

I’m seeing my IFA in just over a week. As I understand IFA’s are able to access and interrogate sites for many scenarios. It would be easier if I could get access as well as sure there will be a lot of playing around to do on systems before we feel comfortable choosing returns, terms, etc.

Thanks, be interested if u can post the results from your IFA.

GSP

BoxerfanUK said:

GSP said:

BoxerfanUK said:

GSP said:

QrizB said:

So you're giving them £670k and receiving £500k back plus £330k of payments?

That's a total gain of £210k over 5 years, 31% total, so just over 5.5% pa.

I’ve still a lot of work to do on this and can see a sizeable excel spreadsheet looming!

My SP kicks in in 5.5 years. There’s tax bands to think about. If we went for this as well, just before we bought this annuity we could take out our whole 25% portion from drawdown which we have been tapping into and reducing for six years now.

Our strategy is not to increase our pension funds, to reduce it actually and enjoy the money (don’t tell the kids that, they’ll get the house anyway!), but also try to protect it as best we can so that it will last to our end alongside SP.

Are you planning to have your other half as a beneficiary for the maturity sum at the end we’re you to die before the fixed term ends?  Also, are you wanting them to continue taking your fixed income to the end of the term should you expire before it?

I’d be interested to see how this affects the figures as I presume it will.

Yes, as there is no other income for her.

Not being able to drill down (except for the high level results given from the website mentioned in my OP), yes I’m ‘interested’ in seeing how much having a beneficiary will reduce the numbers.

From ‘normal’ maturities where more information is available, the reduction did not appear large enough to put me off anyway and hoping it will be the case for fixed term annuity’s.

I’m seeing my IFA in just over a week. As I understand IFA’s are able to access and interrogate sites for many scenarios. It would be easier if I could get access as well as sure there will be a lot of playing around to do on systems before we feel comfortable choosing returns, terms, etc.

Thanks, be interested if u can post the results from your IFA.

I’ll try to! I think there will just be discussions on the subject at that stage, but I’ll contact him before we meet with a list of thoughts, concerns and mention fixed term annuity’s and a scenario. He might well run off the scenario his end to add to the discussion. We might be able to see there and then if this will work for us.

I do remember he said he will charge for bespoke work requested. Now whether running different queries and scenarios counts as additional work, I assume it will do.

I also wonder once/if money goes into a fixed term annuity from drawdown and the IFA is not managing investments on a short term basis if that has any impact on fees?

Malthusian

Spivo46 said:

Doesn’t MPAA apply if you buy an annuity?

not if the annuity payment does not increase and is based on lifetime

The key is whether income has been taken "flexibly". A lifetime annuity does not trigger the MPAA if it increases at a fixed rate or in line with inflation.
A short-term annuity is considered "flexible" income and triggers the MPAA. As does a lifetime annuity where the income is linked to investments and can go down as well as up.
(I believe investment-linked annuities are now extinct in the wild. Unit-linked annuities and With Profits annuities were in theory a thing in the pre-2015 era, but they were a terrible idea even before pension freedoms and I don't know if anyone actually took one out.)

I do remember he said he will charge for bespoke work requested. Now whether running different queries and scenarios counts as additional work, I assume it will do.

I also wonder once/if money goes into a fixed term annuity from drawdown and the IFA is not managing investments on a short term basis if that has any impact on fees?

Very much a question for the IFA. Are you currently paying them an ongoing fee? If so what does it cover (i.e. what is non-bespoke work) according to your client agreement?
In principle, for converting a drawdown fund to a fixed term annuity, I would expect to be charged either a) a continuation of the existing ongoing fee in place on the drawdown fund or b) an initial fee for setting up the annuity with no ongoing fee. (The value of ongoing advice on a product is limited if you can't actually do anything with it.) But it is up to you and the IFA. 

GSP

Malthusian said:

Spivo46 said:

Doesn’t MPAA apply if you buy an annuity?

not if the annuity payment does not increase and is based on lifetime

The key is whether income has been taken "flexibly". A lifetime annuity does not trigger the MPAA if it increases at a fixed rate or in line with inflation.
A short-term annuity is considered "flexible" income and triggers the MPAA. As does a lifetime annuity where the income is linked to investments and can go down as well as up.
(I believe investment-linked annuities are now extinct in the wild. Unit-linked annuities and With Profits annuities were in theory a thing in the pre-2015 era, but they were a terrible idea even before pension freedoms and I don't know if anyone actually took one out.)

I do remember he said he will charge for bespoke work requested. Now whether running different queries and scenarios counts as additional work, I assume it will do.

I also wonder once/if money goes into a fixed term annuity from drawdown and the IFA is not managing investments on a short term basis if that has any impact on fees?

Very much a question for the IFA. Are you currently paying them an ongoing fee? If so what does it cover (i.e. what is non-bespoke work) according to your client agreement?
In principle, for converting a drawdown fund to a fixed term annuity, I would expect to be charged either a) a continuation of the existing ongoing fee in place on the drawdown fund or b) an initial fee for setting up the annuity with no ongoing fee. (The value of ongoing advice on a product is limited if you can't actually do anything with it.) But it is up to you and the IFA. 

I’ve sent a message to my IFA with thoughts, and concerns before my meeting with him next Tuesday. Without having proper drill down access, I have mentioned to him this product looks pretty attractive at the mo from the limited results I can see, and he has replied to say it was already going to form part of the discussion.

I have noticed also that the latest inflation figure is due out a day later on Wednesday morning, then the base rate decision the following day on the Thursday.
These could make figures discussed a couple of days before out of date straight away!