Annuities confusing

ellajuk

I decided I want a lifetime annuity so I have something regular without worring for the rest of my life.  My issue is the red tape getting information.  I have had some generalized online quotes, without too much details so unsure on how tailored they are.  So I then contacted the annuity providers for more detailed illustration however they say they would need me to contact a financial advisor, even though I just want detailed illustrations.  So a financial advisor now wants a letter of authority, and im thinking ... hey give me an illustration first before I decide to go more in depth on this.  There are all these advisory schemes but none are providing the information regarding the protocol behind all this after all, at this stage, im no where near ready to commit. 

HappyHarry

There are currently 6 providers of annuities in the UK market, and not all deal directly with retail clients. 

Of those that do deal with retail clients, the commission they charge tends to be higher than an IFA would charge, and so you are likely to be better using an IFA than going directly.

An IFA should be able to provide you with indicative rates quite quickly, providing you are not looking for an enhanced life annuity. 

ellajuk

Thanks, no its not enhanced.  Just single lifefime linked to rpi.  

HappyHarry

ellajuk said:

Thanks, no it’s not enhanced.  Just single lifefime linked to rpi.  

The RPI link is very expensive - costing around 50% of your initial income. You might want to consider that carefully and compare to fixed rate, 3% and 5% indexation on the annuity. 

ellajuk

I will certainly look at that option.  Thank you. 

xylophone

And RPI is to be phased out.

https://www.thisismoney.co.uk/money/news/article-8986441/Spending-Review-RPI-inflation-phased-February-2030.html

With regard to finding an adviser, you might try

https://adviserbook.co.uk/

Tick "confirmed independent" and other options required when the menu comes up.

westv

HappyHarry said:

ellajuk said:

Thanks, no it’s not enhanced.  Just single lifefime linked to rpi.  

The RPI link is very expensive - costing around 50% of your initial income. You might want to consider that carefully and compare to fixed rate, 3% and 5% indexation on the annuity. 

With fixed increases you have certainty as to how long it will take the total income to exceed a level annuity.

Albermarle

westv said:

HappyHarry said:

ellajuk said:

Thanks, no it’s not enhanced.  Just single lifefime linked to rpi.  

The RPI link is very expensive - costing around 50% of your initial income. You might want to consider that carefully and compare to fixed rate, 3% and 5% indexation on the annuity. 

With fixed increases you have certainty as to how long it will take the total income to exceed a level annuity.

I presume if inflation went low again, you would be quids in with a fixed 5% increase every year?

coyrls

Albermarle said:

westv said:

HappyHarry said:

ellajuk said:

Thanks, no it’s not enhanced.  Just single lifefime linked to rpi.  

The RPI link is very expensive - costing around 50% of your initial income. You might want to consider that carefully and compare to fixed rate, 3% and 5% indexation on the annuity. 

With fixed increases you have certainty as to how long it will take the total income to exceed a level annuity.

I presume if inflation went low again, you would be quids in with a fixed 5% increase every year?

You would have a "sequence of inflation" risk, a few early years of high inflation would do a lot more damage than a few years of high inflation happening much later.

OldScientist

One way of thinking about the choice between RPI and level annuities is to determine what you are going to be spending this income on. For example, if your state pension and any other sources of inflation protected income (DB pension?) cover all your essential expenditure (house/bills/food/etc.) and the income from the annuity is only covering lifestyle type expenditure (e.g., hobbies/travel) then a level annuity (or possibly 3% escalation) might fit the bill since even with high inflation it won't leave you without the means to live and even if it does decline in value, you may not be spending as much on hobbies and travel as you age, i.e. it will give you a spending boost when you are best placed to make use of it.

However, if the income from the annuity is to cover what you consider to be essential then RPI protection might be more appropriate.

Unfortunately, it is impossible to tell which purchase would have been better until a long time after purchase. For example, if you purchase a level annuity and we experience 10 years of inflation at 5%, then the income  would have been reduced by nearly 40% in real terms. On the other hand, if we have 10 years at 2%, then the income would only have been reduced by about 20%. A repeat of the inflation levels seen in the 1970s and 1980s will be unpleasant for anyone who purchases a level annuity (even a fixed escalation of 3% would only partially ameliorate the outcome with inflation at 10+%).

OldScientist

Just to add, have you looked at the quotes from https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities 

My understanding is that you might be able to get better rates than this through an IFA, but the tool does allow you to get a a fairly customisable quote.