Annuities confusing

zagfles

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.

Why would that be useful to anyone, other than as an academic exercise?

The point of an annuity is a guarantee of an income for life. If you want to do what history has shown is most likely to maximise your lifetime income, remain invested in equities. If you want a guaranteed real income for life, buy an index linked linked annuity. If you want an income that will rise or fall by random unknown amounts in real terms every year, and probably get you less than remaining invested in equities, then get a level or fixed rate escalating annuity. Personally I can't see the point in the latter.

sgx2000

As mentioned earlier . 
The Hargraves Lansdown website has an excellent annuity calculator.
It includes medical conditions etc that may give a larger rate.

One major benefit is that you can easily try different options.  
I.e.  which medical condition actually makes a difference to the rate they supply...

Also 1 click to redo previous quotes....

Pat38493

zagfles 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.

Why would that be useful to anyone, other than as an academic exercise?

The point of an annuity is a guarantee of an income for life. If you want to do what history has shown is most likely to maximise your lifetime income, remain invested in equities. If you want a guaranteed real income for life, buy an index linked linked annuity. If you want an income that will rise or fall by random unknown amounts in real terms every year, and probably get you less than remaining invested in equities, then get a level or fixed rate escalating annuity. Personally I can't see the point in the latter.

I guess it could be more worthwhile for a fixed term annuity over 5 or 10 years to bridge till SP, where the inflation risk is not over such a long period, and you could combine it with equities to try to mitigate some of the downside risk of using a drawdown fund for bridging.  However I guess that's not the OP request.

westv

zagfles 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.

Why would that be useful to anyone, other than as an academic exercise?

Clearly it's useful to some people otherwise fixed increase annuities would never be sold to anyone and the question would never come up on here - but it has.

OldMusicGuy

Fixed rate annuities are useful for people in care homes, where the care home fees are their main expense and they tend to go up by a fixed amount each year regardless of inflation. We just arranged one for my FiL and according to our adviser, the average annual increase in care home fees is 5%, so we went for a 5% fixed annual increase. His care home fees were escalating at 4% per annum, this year it's gone up to 5%.

ch3shirecat4

I found this article on Annuities the other day and I think it explains it pretty well. When I have spoken to friends they have recommended shopping around before accepting the first offer. Hope this helps https://www.hubfinancialsolutions.co.uk/generate-your-income/annuities/

zagfles

OldMusicGuy said:

Fixed rate annuities are useful for people in care homes, where the care home fees are their main expense and they tend to go up by a fixed amount each year regardless of inflation. We just arranged one for my FiL and according to our adviser, the average annual increase in care home fees is 5%, so we went for a 5% fixed annual increase. His care home fees were escalating at 4% per annum, this year it's gone up to 5%.

Yes I can see they're useful if they're used to pay for something that escalates by a fixed % every year.

They aren't useful just so you can say "if I live to 87 years and 4 months I'll get more than if I'd gone for a flat annuity!!"

But if the annuity is used for general cost of living items, then having a link with the general cost of living is probably more useful.