Annuities

Carmen

Hello, could someone please give me advice regarding annuities?

My O/H has a private pension that will come to an end when he retires next month.
We have been adviced that we can only take a 1/4 in cash and the rest has to be put into annuities! This is where the problem starts.

We know that IFA's are not all the same but we have been bitten badly in the past with them :mad: and have no idea how to find a genuine one, or should we take the offer our pensions company are giving us?

Must be honest, do not know the first thing about annuites, what it involves, how long does then money need to be tied up in them, what are the returns etc and will the widow/widower benefit?

We would appreciate any advice.

Thanks
Carmen x

ReportInvestor

You must shop around for the annuity. Don't just take the one on offer.

Check out the tables on http://www.fsa.gov.uk/consumer/compare/index.html as a starting point.

oceanblue_3

As Reporter has said, you must shop around for the annuity - don't automatically accept the annuity offered by your husband's pension company.

One or two questions:

1) What is the value of your husband's pension fund?

2) How old is your husband?

3) Do you actually need the income it can generate?

4) Is your husband in good health?

dunstonh

We know that IFA's are not all the same but we have been bitten badly in the past with them :mad: and have no idea how to find a genuine one, or should we take the offer our pensions company are giving us?

Fairly easy with annuities. Ask to see the assureweb/exchange printout which will list the companies in order of the best amount. This is usually only an indicator as rates can change daily but I usually get an assureweb list and then get quotes individually from the top 3 quoted. All of which goes on the client file and can be shown for reference.

Carmen

Hello, thank you all for the information.

Oceanblue the answers to your questions:

1. Approximately £40,000
2. Will be 65 in 5 weeks
3. Not sure at the moment
4. Yes

oceanblue_3

The previous message from dustonh tells you most of what you need to know but, as a general guide.........

1) Assuming your husband takes the maximum tax-free cash of £10,000.00, then the best annual annuity payable is approximately £2,092.00 (before tax). These payments to your husband will not increase each year but will stay the same throughout; if you want these payments to increase each year by, say 3%, then the amount payable will reduce to approximately £1,541.00 per year.
In addition, these figures make no allowance for the payments continuing to you should your husband predecease you (the payments would cease when he died). If you would like some, or all, of the payment to continue to you, then the starting payments would be lower. On the other hand, these payments would be higher if your husband were able to say that he had smoked tobacco for the last ten years or so.

2) If you do not need this additional income immediately, don't forget that your husband's pension fund will remain invested and could, possibly, lose value. In these circumstances, you could decide to buy an annuity in ten months' time, for example, and the amount available will have dropped significantly. If you both believe that you will be taking the income in the not-too-distant future, and don't want to be stung by a falling market, you need to think about protecting the fund by switching to a very low-risk Cash Pension Fund with your current pension company.

I'm sure other posters will pick up on points that I may have overlooked.

EdInvestor

Hi Carmen


If you and OH have other pensions or income from investments, you may like to consider an idea called "income drawdown" .This is an alternative to losing the capital with the annuity.

http://www.annuity-bureau.co.uk/tab/default.aspx

This website has a lot of useful info about all the different ways of turning a pension fund into a retirement income.

Thankfully the annuity is no longer compulsory as they are now such poor value.:( I would steer clear of what they call "investment linked annuities" which are IMHO a real con as you give up your capital AND take the risk.Drawdown is a much better idea. There are now low cost ways of doing drawdown so it can be an option for smaller funds under 100k.

dunstonh

Thankfully the annuity is no longer compulsory as they are now such poor value.:( I would steer clear of what they call "investment linked annuities" which are IMHO a real con as you give up your capital AND take the risk.Drawdown is a much better idea. There are now low cost ways of doing drawdown so it can be an option for smaller funds under 100k.

Havent you got drawdown and investment linked annuities the wrong way round? I did a with profits annuity recently and that is far less risky than drawdown based on the ABR I used.

EdInvestor

dunstonh

I'd be interested to hear your comments on the risks of WP annuities.But what I basically meant is that a product which requires you to take risks and give up your capital ,while providing no guarantee in return is IMHO a product with very poor value.

Do you realise that the WP annuitants at Equitable Life have now had their income cut by 40%?

How scary is that? Such a product should not be allowed to use the name "annuity" IMHO :mad:

dunstonh

Arggh. typed a response and it didnt take. So here is the shorter version.

The WP annuity I did was with Pru. It had a zero ABR. Meaning that if the bonus rate was zero, no increase in annuity. However, whenever there was a bonus rate, the annuity gets increased. Basically, its running like an annually increasing annuity but with the potential for greater increases annually. However, the risk is that where there is zero bonus, there is no increase that year. To be fair, Pru are the only company I would consider doing this with.

I wouldnt set up a WP annuity with a higher ABR otherwise you could end up in the situation that Eq Life holders are in. However, how much more were EL policyholders getting when things were not as bad?

Carmen

Firstly, thank you for your help, it all sounds quite scary :eek: My husband stopped paying into this pension approx 8 yrs ago because the 'forcasts' were looking sad and because of starting the pension later in life the monthly payments were quite high and we decided that we could put the money to better use at that time!
Is it possible to just take the whole amount and pay off our outstanding loans?
Thanks again
Carmen x