Fixed Term Annuity - Use Part of Drawdown, Or The Whole Hog in This Product?

Trapdoor

GSP said:

Trapdoor said:

I’m currently in the process with my IFA of doing something similar although the tax free element of my SIPP will be invested elsewhere to keep it outside of the income tax regime. My plan is for this 5 year guaranteed annuity to carry me over until I receive my SP and I also have two smaller DB pensions currently in payment. After 5 years I get back my original ‘investment’ which I can then decide whether to go into flexible drawdown, take another fixed annuity or opt for a lifetime annuity.

Part of this plan is to protect against future losses (and of course gains), but the effective interest rate on some of these products is pretty good. My question to my IFA was …” if I took £30k per year in flexible drawdown, could you guarantee after 5 years my SIPP would be valued no less than it is now” … of course he couldn’t guarantee that … but with this ‘plan’ that is pretty much what I’m doing, with the added security knowing exactly how much per month I’m getting and that in 5 years my pension will be worth what it is today.

This will give me flexibility to stash any surplus monthly cash away, especially next year into my ISA. Yes, I get the ‘no inflationary protection’ bit, but that’s the point of stashing excess now which I can draw back as and when I need it.

Why not leave some in my SIPP? Because I’m still down about £60k from 3 years ago and I just don’t have much confidence in the markets with what I think may be coming down the line. I can relax for 5 years.

I guess I may have a different outlook on life now since plans were completely destroyed back in late 2019 when my wife passed away due to cancer. She died at 60 and never got the chance to enjoy her retirement or collect her state pension 😢

Thanks for your reply, and so so sorry to hear of your loss Trapdoor.

I am likeminded as I too have major concerns for next year, and want stability in my income. I’ve been guilty of spending too much time watching numbers go up and down, and it would be good to have a period of some peace, financial wise at least.

My idea is not to make gains, but just making our fund last through the remaining years.

To come up with this plan, has it taken a while for you and your IFA to come to this point? All I can see my end are a number of different scenarios starting with how much to give and receive back from a Fixed Term Annuity.

Do you agree it’s not really worth looking further then the 5 year term rates offered? They seem to drop away quite sharply after that period. 

It sounds like you very much have the same ideas and concerns I have.

At my last IFA review meeting last November, we discussed annuities but these were lifetime annuities, and back then rates were not particularly attractive. I came across this fixed annuity with maturity product back in March … from. Chris Bourne YouTube video

https://youtu.be/RIq6HjvgC0o?si=O_BD4sPnnLqhIxcd

… it looked interesting, and I started looking at quotes. I forwarded the link on to my IFA to seek his opinion and to be honest he initially talked me out of considering it, stressing flexi-drawdown would be the best option … and of course he was telling me that my SIPP would regain lost ground.

Since March, my circumstances with regard to work and my health have changed some, and I revisited the quotes at the end of July and realised the rates have improved significantly, so I contacted my IFA again only to be told he was leaving the company and had been embargoed from working as an IFA for 6 months. So I was allocated a new IFA, who had to go through my finances and circumstances again, but he was much more receptive to looking at these products as a viable alternative to drawdown, certainly in the short term to carry me over until SPA. I did look at longer than 5 years but I’m not really able to see that far down the road and want to be able to reevaluate my options. Having State Pension kick in will make that easier I hope.

One interesting thing that emerged was that of course, if you buy an annuity with your whole pot, the IFA no longer gets the ongoing fees! I do feel that perhaps the IFAs are not too keen to push these products for this very reason.

My IFA has run some comparison quotes and they have come out better than I have obtained directly. He is currently running the ‘plan’ through their compliance team, and I am hoping we can get this all in place by December when I’m planning to start significantly reducing my workload.

good luck with whatever you decide to do and keep us updated.

Albermarle

My question to my IFA was …” if I took £30k per year in flexible drawdown, could you guarantee after 5 years my SIPP would be valued no less than it is now” … of course he couldn’t guarantee that … but with this ‘plan’ that is pretty much what I’m doing

Why not leave some in my SIPP? Because I’m still down about £60k from 3 years ago and I just don’t have much confidence in the markets with what I think may be coming down the line

Without knowing the size of your pension pot, it is not possible to comment sensibly.

BoxerfanUK

Trapdoor said:

I’m currently in the process with my IFA of doing something similar although the tax free element of my SIPP will be invested elsewhere to keep it outside of the income tax regime. My plan is for this 5 year guaranteed annuity to carry me over until I receive my SP and I also have two smaller DB pensions currently in payment. After 5 years I get back my original ‘investment’ which I can then decide whether to go into flexible drawdown, take another fixed annuity or opt for a lifetime annuity.

Part of this plan is to protect against future losses (and of course gains), but the effective interest rate on some of these products is pretty good. My question to my IFA was …” if I took £30k per year in flexible drawdown, could you guarantee after 5 years my SIPP would be valued no less than it is now” … of course he couldn’t guarantee that … but with this ‘plan’ that is pretty much what I’m doing, with the added security knowing exactly how much per month I’m getting and that in 5 years my pension will be worth what it is today.

This will give me flexibility to stash any surplus monthly cash away, especially next year into my ISA. Yes, I get the ‘no inflationary protection’ bit, but that’s the point of stashing excess now which I can draw back as and when I need it.

Why not leave some in my SIPP? Because I’m still down about £60k from 3 years ago and I just don’t have much confidence in the markets with what I think may be coming down the line. I can relax for 5 years.

I guess I may have a different outlook on life now since plans were completely destroyed back in late 2019 when my wife passed away due to cancer. She died at 60 and never got the chance to enjoy her retirement or collect her state pension 😢

So sorry for your loss Trapdoor.  We are looking at this too as an option to drawdown.  Can you explain your reasoning for not including the tax free sum, and where else would you invest it.  We was thinking just to use that element as well in a fixed 5 year annuity as that also will grow with the maturity sum will it not?!

Trapdoor

BoxerfanUK said:

So sorry for your loss Trapdoor.  We are looking at this too as an option to drawdown.  Can you explain your reasoning for not including the tax free sum, and where else would you invest it.  We was thinking just to use that element as well in a fixed 5 year annuity as that also will grow with the maturity sum will it not?!

Thank you BoxerfanUK 🙏

Well, the subject of the tax free element cropped up because my original IFA had given me duff info … he asserted that the annuity company would basically split the income from the annuity into taxable and tax free payments … this was wrong, and it was clear that if the whole pot is used to purchase the annuity then all the income is taxable … so you gain nothing at all from the TFLS.

So, my new IFA recommended to invest it elsewhere which maintains its tax free status … now that could be an ISA but that would take 8 years to put into an ISA using the annual £20k allowance so interest earnings in a savings account would attract tax.

Now this is the bit I didn’t get, but he asserts it can be ‘invested’ in a vehicle which the income is either tax free or somehow attracts less tax … but I’ve looked back through my notes and I can’t decipher what product that is. Sorry. What I do know is that it’s ‘managed’, similarly to a SIPP (but it’s not a SIPP) and attracts ongoing management fees, but will (he claims) give me an income at least equal to what would have been paid if it had been added into the annuity. Only it won’t attract tax somehow 🤷🏼‍♂️ 

I’ll hopefully get more info once he supplies the full proposal once it’s gone through their internal compliance.

BoxerfanUK

Trapdoor said:

BoxerfanUK said:

So sorry for your loss Trapdoor.  We are looking at this too as an option to drawdown.  Can you explain your reasoning for not including the tax free sum, and where else would you invest it.  We was thinking just to use that element as well in a fixed 5 year annuity as that also will grow with the maturity sum will it not?!

Thank you BoxerfanUK 🙏

Well, the subject of the tax free element cropped up because my original IFA had given me duff info … he asserted that the annuity company would basically split the income from the annuity into taxable and tax free payments … this was wrong, and it was clear that if the whole pot is used to purchase the annuity then all the income is taxable … so you gain nothing at all from the TFLS.

So, my new IFA recommended to invest it elsewhere which maintains its tax free status … now that could be an ISA but that would take 8 years to put into an ISA using the annual £20k allowance so interest earnings in a savings account would attract tax.

Now this is the bit I didn’t get, but he asserts it can be ‘invested’ in a vehicle which the income is either tax free or somehow attracts less tax … but I’ve looked back through my notes and I can’t decipher what product that is. Sorry. What I do know is that it’s ‘managed’, similarly to a SIPP (but it’s not a SIPP) and attracts ongoing management fees, but will (he claims) give me an income at least equal to what would have been paid if it had been added into the annuity. Only it won’t attract tax somehow 🤷🏼‍♂️ 

I’ll hopefully get more info once he supplies the full proposal once it’s gone through their internal compliance.

Thanks for that detailed explanation Trapdoor, appreciate it and would be interested to know the final detail of this when your IFA gets back to you.

Regarding the tax free part, I wonder if they mean that it would all be taxable ‘whilst it’s in the annuity’!  As an example, if the whole pot was put into an annuity and you wanted to take, say, 50k per year then clearly it would be difficult to split the tax free part from the taxable when taking the income, whereas, if I wanted to take only up to 12,570 per year then tax not an issue.

As we know, at the end of the term it can be put back into a SIPP at maturity so could it then revert to its taxable and tax free elements? or not? I wonder!! 

Please keep us updated on the outcome.  Many thanks.

QrizB

BoxerfanUK said:

As we know, at the end of the term it can be put back into a SIPP at maturity so could it then revert to its taxable and tax free elements? or not? I wonder!!

I think (but am not certain) that the answer here is "not".

BoxerfanUK

QrizB said:

BoxerfanUK said:

As we know, at the end of the term it can be put back into a SIPP at maturity so could it then revert to its taxable and tax free elements? or not? I wonder!!

I think (but am not certain) that the answer here is "not".

I tend to agree, although it would be nice to have a definitive answer.

Trapdoor

QrizB said:

BoxerfanUK said:

As we know, at the end of the term it can be put back into a SIPP at maturity so could it then revert to its taxable and tax free elements? or not? I wonder!!

I think (but am not certain) that the answer here is "not".

Yes, I was told “not” by my IFA which is why he wants to keep it (somehow, and not yet exactly sure just yet) inside a tax free investment product.

It may be that eventually I’m not too bothered … my preference would have been to have this in an ISA. It’s a real shame that there is no mechanism to transfer the TFLS  into an ISA in the same way ISA to ISA transfers are allowed.

BoxerfanUK

Trapdoor said:

QrizB said:

BoxerfanUK said:

As we know, at the end of the term it can be put back into a SIPP at maturity so could it then revert to its taxable and tax free elements? or not? I wonder!!

I think (but am not certain) that the answer here is "not".

Yes, I was told “not” by my IFA which is why he wants to keep it (somehow, and not yet exactly sure just yet) inside a tax free investment product.

It may be that eventually I’m not too bothered … my preference would have been to have this in an ISA. It’s a real shame that there is no mechanism to transfer the TFLS  into an ISA in the same way ISA to ISA transfers are allowed.

Hi Trapdoor, yes I had confirmed today that if buying an annuity be it a fixed term or lifetime, you have one opportunity to take the tax free lump sum, which is at the beginning. With a fixed term annuity of five years, whatever the guaranteed maturity value is at the end of the term yes you can put it into a new SIPP to drawdown…… but it is ALL taxable.

would still be interested to learn how your IFA can shelter your tax free lump sum from taxable interest

GSP

Trapdoor said:

GSP said:

Trapdoor said:

I’m currently in the process with my IFA of doing something similar although the tax free element of my SIPP will be invested elsewhere to keep it outside of the income tax regime. My plan is for this 5 year guaranteed annuity to carry me over until I receive my SP and I also have two smaller DB pensions currently in payment. After 5 years I get back my original ‘investment’ which I can then decide whether to go into flexible drawdown, take another fixed annuity or opt for a lifetime annuity.

Part of this plan is to protect against future losses (and of course gains), but the effective interest rate on some of these products is pretty good. My question to my IFA was …” if I took £30k per year in flexible drawdown, could you guarantee after 5 years my SIPP would be valued no less than it is now” … of course he couldn’t guarantee that … but with this ‘plan’ that is pretty much what I’m doing, with the added security knowing exactly how much per month I’m getting and that in 5 years my pension will be worth what it is today.

This will give me flexibility to stash any surplus monthly cash away, especially next year into my ISA. Yes, I get the ‘no inflationary protection’ bit, but that’s the point of stashing excess now which I can draw back as and when I need it.

Why not leave some in my SIPP? Because I’m still down about £60k from 3 years ago and I just don’t have much confidence in the markets with what I think may be coming down the line. I can relax for 5 years.

I guess I may have a different outlook on life now since plans were completely destroyed back in late 2019 when my wife passed away due to cancer. She died at 60 and never got the chance to enjoy her retirement or collect her state pension 😢

Thanks for your reply, and so so sorry to hear of your loss Trapdoor.

I am likeminded as I too have major concerns for next year, and want stability in my income. I’ve been guilty of spending too much time watching numbers go up and down, and it would be good to have a period of some peace, financial wise at least.

My idea is not to make gains, but just making our fund last through the remaining years.

To come up with this plan, has it taken a while for you and your IFA to come to this point? All I can see my end are a number of different scenarios starting with how much to give and receive back from a Fixed Term Annuity.

Do you agree it’s not really worth looking further then the 5 year term rates offered? They seem to drop away quite sharply after that period. 

It sounds like you very much have the same ideas and concerns I have.

At my last IFA review meeting last November, we discussed annuities but these were lifetime annuities, and back then rates were not particularly attractive. I came across this fixed annuity with maturity product back in March … from. Chris Bourne YouTube video

https://youtu.be/RIq6HjvgC0o?si=O_BD4sPnnLqhIxcd

… it looked interesting, and I started looking at quotes. I forwarded the link on to my IFA to seek his opinion and to be honest he initially talked me out of considering it, stressing flexi-drawdown would be the best option … and of course he was telling me that my SIPP would regain lost ground.

Since March, my circumstances with regard to work and my health have changed some, and I revisited the quotes at the end of July and realised the rates have improved significantly, so I contacted my IFA again only to be told he was leaving the company and had been embargoed from working as an IFA for 6 months. So I was allocated a new IFA, who had to go through my finances and circumstances again, but he was much more receptive to looking at these products as a viable alternative to drawdown, certainly in the short term to carry me over until SPA. I did look at longer than 5 years but I’m not really able to see that far down the road and want to be able to reevaluate my options. Having State Pension kick in will make that easier I hope.

One interesting thing that emerged was that of course, if you buy an annuity with your whole pot, the IFA no longer gets the ongoing fees! I do feel that perhaps the IFAs are not too keen to push these products for this very reason.

My IFA has run some comparison quotes and they have come out better than I have obtained directly. He is currently running the ‘plan’ through their compliance team, and I am hoping we can get this all in place by December when I’m planning to start significantly reducing my workload.

good luck with whatever you decide to do and keep us updated.

Thanks Trapdoor,

We have our meeting with our IFA this Friday. 

Without seeing anything from him yet, but him mentioning this product will be discussed at the meeting, I’ve been trying to come up with different scenario’s to at least have some kind of gauge before he lays out anything in front of us.

A couple of years ago I produced a planner to take us to 95 and 100 years of age, and ‘interesting’ how this quickly became out out of date with market volatility.

I still want to stick to this planner as I don’t see I should be looking at one or two years in isolation.

Another ‘thing’ that might be good about an FTA at this time is that you can fix the guarantee amount when the term ends. Looking at my forecasted planner and some scenario’s I have run, I can get us back into line to where we should or where I wanted to be in 5 years time, without the stress of further market volatility.

Interested to hear you mention about fees for the IFA once in this product. I’d like to keep the relationship with him going as I am looking at a 5 year term perhaps, and will need him when that is about to expire. My wife has a smaller fund she is currently drawing down, but less uncertain if that is to stay as drawdown, or to take out an FTA here as well.

I also wonder with the check in the base rate this month, but with the uncertainty of the next decision how quickly this all needs to be done. 

I have £6k left as cash in my fund, and with rebalancing very soon needed on both funds I’m sure we’ll ‘be down’ as current investments have to be sold, perhaps?
So with that in mind, I suppose the investments will need to be sold anyway to turn into a FTA, and will just have to turn a blind eye to any losses in these.

Yes of course I will keep you posted how the meeting goes once I have digested it, and likewise I’ll be very interested to hear how your plan is doing.