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

GSP

I’ve just looked at Canada Life’s Retirement Income Plan Product Details.

Under Death Benefit, it says “ If you die before the end of the term, we’ll provide a guaranteed death benefit. This will be the original purchase price minus any income paid to you before tax, up to the date of your death, and any adviser charges you have instructed us to pay”.

I was thinking of putting in £585k to receive back £500k after five years.
For the £85k less at the term end, as an income I would receive currently £44,198 a year, or £220,990 over the five years.

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

 

QrizB

GSP said:

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

Seems unlikely (the "death benefit" explanatory text doesn't seem to be tailored for your style of annuity) but the devil is in the detail.

Albermarle

GSP said:

I’ve just looked at Canada Life’s Retirement Income Plan Product Details.

Under Death Benefit, it says “ If you die before the end of the term, we’ll provide a guaranteed death benefit. This will be the original purchase price minus any income paid to you before tax, up to the date of your death, and any adviser charges you have instructed us to pay”.

I was thinking of putting in £585k to receive back £500k after five years.
For the £85k less at the term end, as an income I would receive currently £44,198 a year, or £220,990 over the five years.

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

 

What actually happens after 5 years when you get the £500K back, and you do not want to buy another annuity?
Do you have to open a new DC pension and put it in there as crystallised funds?
I know this question has been asked before, but I am not sure if the mechanics have been made really clear ( or I have forgotten ) 

GSP

QrizB said:

GSP said:

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

Seems unlikely (the "death benefit" explanatory text doesn't seem to be tailored for your style of annuity) but the devil is in the detail.

Their messaging is under the Retirement Income Plan product details, so I can only assume it is regarding this type of annuity.

GSP

Albermarle said:

GSP said:

I’ve just looked at Canada Life’s Retirement Income Plan Product Details.

Under Death Benefit, it says “ If you die before the end of the term, we’ll provide a guaranteed death benefit. This will be the original purchase price minus any income paid to you before tax, up to the date of your death, and any adviser charges you have instructed us to pay”.

I was thinking of putting in £585k to receive back £500k after five years.
For the £85k less at the term end, as an income I would receive currently £44,198 a year, or £220,990 over the five years.

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

 

What actually happens after 5 years when you get the £500K back, and you do not want to buy another annuity?
Do you have to open a new DC pension and put it in there as crystallised funds?
I know this question has been asked before, but I am not sure if the mechanics have been made really clear ( or I have forgotten ) 

The options are, cash, buy another annuity, whether that will be another fixed (my state pension will kick in shortly this 5 year matures, so I may not need as much to invest in this product) or a lifetime (I’ll be five years older), or I can go back into drawdown.

My view at this time and with rates still attractive was to receive the security and stability of an annuity, and have a bit of peace in my life without worrying about stock market volatility. I still don’t think things will improve for a few more years yet, and my fear is world peace will be much further away in 2024, if you get my drift.

I, just can’t look past 5 years at the moment, but at least I’ll receive the £500k if I don’t snuff it first. In addition my OH is in drawdown and by the end if ten years will be talking about her state pension as well.

 

Albermarle

The options are, cash, buy another annuity, whether that will be another fixed (my state pension will kick in shortly this 5 year matures, so I may not need as much to invest in this product) or a lifetime (I’ll be five years older), or I can go back into drawdown.

Presume if you took it all as cash, there would be a huge tax bill !

I suppose in your scenario the biggest unknown is inflation . The £500K will not be worth £500K in real terms after 5 years. Could be anything from say £425 K to £400K, or even less if inflation proves to be really sticky.

QrizB

GSP said:

QrizB said:

GSP said:

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

Seems unlikely (the "death benefit" explanatory text doesn't seem to be tailored for your style of annuity) but the devil is in the detail.

Their messaging is under the Retirement Income Plan product details, so I can only assume it is regarding this type of annuity.

Their client guide says the same:
https://p3.aprimocdn.net/canadalifeuk/fixed-term-income-plan-client-guide.pdf

GSP

Albermarle said:

The options are, cash, buy another annuity, whether that will be another fixed (my state pension will kick in shortly this 5 year matures, so I may not need as much to invest in this product) or a lifetime (I’ll be five years older), or I can go back into drawdown.

Presume if you took it all as cash, there would be a huge tax bill !

I suppose in your scenario the biggest unknown is inflation . The £500K will not be worth £500K in real terms after 5 years. Could be anything from say £425 K to £400K, or even less if inflation proves to be really sticky.

Yes, that would not be an option!

The bigger numbers are my £500k, the OH’s £100k, two state pensions kicking in in 5 and 11 years time, and 3 inheritances totalling at least £400k.

We are not looking to grow any pots, just survival really getting trying to get the above through financially to our death’s.

zagfles

GSP said:

I’ve just looked at Canada Life’s Retirement Income Plan Product Details.

Under Death Benefit, it says “ If you die before the end of the term, we’ll provide a guaranteed death benefit. This will be the original purchase price minus any income paid to you before tax, up to the date of your death, and any adviser charges you have instructed us to pay”.

I was thinking of putting in £585k to receive back £500k after five years.
For the £85k less at the term end, as an income I would receive currently £44,198 a year, or £220,990 over the five years.

So from my understanding, if I managed to die say 4 years 10 months in, that ‘death benefit’ would reduce my ‘guaranteed lump sum’ from the ‘original purchase price’ (£585k) to my OH by say £210k to c£375k?

It's interesting comparing this to what you'd get if you just bought a similar gilt (or gilt ladder). Making it very simple, if you were to sort of replace this with a single gilt, TR28 https://www.londonstockexchange.com/stock/TR28/united-kingdom/company-page which matures Dec 2028 and is currently trading above par at 107.86, so to buy £500k worth would cost £539,300 and would get an annual income of £30,000 with £500k return guaranteed in Dec 2028.

So that would leave £45,700 spare from the original £585k, which could be simply split across the 5 years with a bit of interest would likely get a bit over £10k pa extra to add to the £30k, making a bit over £40k annual income.

So it looks like the FTA gets about £4k income more than simply using a gilt, with the downside that if you were to die during the term your beneficiary would likely lose something between 0 and £135k compared to the gilt. Looks like there's about a 5% chance on average of death in 5 years from around 60 to 65, so the extra income comes partly from the mortality credit (you gain a bit if you don't die, your beneficiaries lose a lot if you do, but the former is the most likely), but not sure this fully explains it, unless you have health issues? 

Or else the insurance company isn't relying on gilts, but they surely have to use 100% guaranteed investments?

In reality you probably would use multiple gilts anyway, just a back of a fag packet comparison...

Trapdoor

@GSP … £12k to setup your FTA 😱 … mine will be for a slightly lower purchase price and they were talking about fees not exceeding £2k, and that’s also with setting up the bond to hold my TFLS.

There are a few ‘issues’ with mine going forward, not least of all an issue with an ‘administrative error’ that has significantly delayed getting things in place before my Canada Life quote (at the old, higher rate) expires … I’m banking on my IFA coming to see me tomorrow to sign the necessary forms to get my FTA in place.

Like you, I’m less bothered about growth … I have two DB pensions currently running which have indexation, one being an NHS pension. I’m currently self employed and can scale up or down work (if I decide to continue at all) … the decision on my SIPP is to try and protect from further losses … I know the FAs all claim that “we’ve had a few bad years” and that things will improve, and those on here that say that the money out at the end of the term will have been ravaged by inflation, but I’ll be getting north of £30k a year for 5 years … if I drew down £30k per year for the next 5 years, would my SIPP be more or less than it is now? Well, they can’t answer that, but who knows what other future shocks are being baked into the financial system … and 5 years hence my SP kicks in at >£10kpa … I’m hoping my only worry going forward is keeping under the 40% tax rate!

Now just waiting to find out whether my run of bad luck on Premium Bonds continues this month … £50k holding and a staggering £225 in winnings over the past 12 months with 6 of those (and the past three) being £0 wins 😖🙄