Annuity dilemma

waveyjane

I'm hoping to retire in the next 12 months. Am I right in thinking that annuity rates have gone up a lot recently? Not sure why that is (bond market?), but it's making me think perhaps I should change my retirement plans. 

I had assumed I'd live off combined dividends from my ISA and my SIPP, but now I'm thinking I should consider buying an annuity with the SIPP instead. Right now that would get me about 20% more income as far as I can tell (index linked too). Down side is that I can't pass it on to the kids when I go, but I'll still have my ISA investments.

Is anyone else re-considering annuities? It's scary as you only have one shot!

EDIT: For some reason this thread got pulled off topic quite fast. Maybe I should re-phrase the above as:

Is there anyone else (like me) who's been expecting to fund their retirement wholly by either yield or total return, now thinking of funding it at least partially with an annuity?

xylophone

You don't have to use the whole of the SIPP to buy an annuity.

SouthCoastBoy

No I've not changed my strategy, however when/if I get close to 75 I may buy an annuity then just as I can't see me wanting to closely manage my sipp as I get older. I wouldn't use all my sipp to buy annuity though. Everything will obviously depend on my finances and state of the world at that time.

Pat38493

waveyjane said:

I'm hoping to retire in the next 12 months. Am I right in thinking that annuity rates have gone up a lot recently? Not sure why that is (bond market?), but it's making me think perhaps I should change my retirement plans. 

I had assumed I'd live off combined dividends from my ISA and my SIPP, but now I'm thinking I should consider buying an annuity with the SIPP instead. Right now that would get me about 20% more income as far as I can tell (index linked too). Down side is that I can't pass it on to the kids when I go, but I'll still have my ISA investments.

Is anyone else re-considering annuities? It's scary as you only have one shot!

Firstly, most people who are using a drawdown type approach, don't just try to live out their entire retirement on the dividends from their fund - most would do some modelling and make a plan which has only a very low risk of the fund being depleted by your estimated longevity age for example.  In other words if you buy an annuity you don't (normally) get your money back at the end and likewise you don't necessarily plan to die with your fund intact (maybe I misunderstood but that's what you appear to be saying was your plan).

Secondly - yes annuity rates have improved a lot, but this doesn't necessarily mean you will end up better off in the long run - with an annuity you are buying certainty which can be expensive over the long term.

Also as pointed out above - you don't have to go all in one way or the other - you could buy an annuity with part of your fund and put the rest into drawdown or suchlike.  Further - you can also buy different types of annuities with various features, including fixed term annuities which are for a specific length of time.

This is where consulting an IFA can sometimes come in handy because IFA's often have access to lower pricing for annuities, especially if you have health conditions.  The IFA will charge fees, but these might end up being less then the saving they get you on the annuity purchase.

Brie

Before you talk to an IFA why not have a chat with the Pension Wise service.  I had an hour long phone appointment where they explained the options regarding annuities and drawdown.  If nothing else it brings you up to date on some of the rules and what's available and prepares your thoughts for talking to an IFA.

dunstonh

I'm hoping to retire in the next 12 months. Am I right in thinking that annuity rates have gone up a lot recently?

Fixed term annuities appear to have peaked and have been falling back.  Level Lifetime annuities have been going up consistently for nearly 2 years.  RPI based annuities not by as much.

 Not sure why that is (bond market?),

Gilt yields increasing (largely on the back of interest rate rises).  Also life expectancy increases have slowed.  Its notable that age 70+ annuity rates have gone up more than 60+ (by ratio)

 Down side is that I can't pass it on to the kids when I go

Why not?   You can buy death benefits.

Before you talk to an IFA why not have a chat with the Pension Wise service.  I had an hour long phone appointment where they explained the options regarding annuities and drawdown.  If nothing else it brings you up to date on some of the rules and what's available and prepares your thoughts for talking to an IFA.

Be aware that pensionwise is generic and does not talk (or know) about commercial influences.  And they do not cover all areas.  So, things like bed & pension from the ISA each year wouldn't be considered but is something that the OP is likely doing (or should be in most cases).   They wont know the commercial impact of various things.    So, its more like a generic exam style question and answer.  Often you find that people who have seen pensionwise and then go on to see an IFA find the IFA has a different solution.    

waveyjane

Good point about not needing to use all the SIPP. I might do some calculations for perhaps using the growth portions of it for an annuity perhaps. 

BTW I should have made it clear that I'm just taking the yield from the ISA and SIPP and don't plan to sell the capital. I realise in terms of income, it's swings and roundabouts overall, but it's just a bit psychologically hard to sell things.

Oh forgot about death benefits, but that reduces the income so I think probably not. We don't need to pass on lots of stuff to the kids they should be able to fend for themselves!

And I've had a Pensionwise session. It was a bit too generic for me I'm afraid as about half of my retirement investments are in an ISA (and yes, adding to the pension for that free £720), and I'm also going to use a cash bridge until state pensions come in - I'm 56.

Doctor_Who

And I've had a Pensionwise session. It was a bit too generic for me I'm afraid as about half of my retirement investments are in an ISA (and yes, bed and ISA will be a thing for that free £700 a year or so), and I'm also going to use a cash bridge until state pensions come in - I'm 56.

Not sure what you mean by this? For a non-earner you can contribute £2880 net to a pension and get £720 pension tax relief, but there's nothing like this for ISAs!

Pat38493

waveyjane said:

Good point about not needing to use all the SIPP. I might do some calculations for perhaps using the growth portions of it for an annuity perhaps. 

BTW I should have made it clear that I'm just taking the yield from the ISA and SIPP and don't plan to sell the capital. I realise in terms of income, it's swings and roundabouts overall, but it's just a bit psychologically hard to sell things.

Oh forgot about death benefits, but that reduces the income so I think probably not. We don't need to pass on lots of stuff to the kids they should be able to fend for themselves!

And I've had a Pensionwise session. It was a bit too generic for me I'm afraid as about half of my retirement investments are in an ISA (and yes, bed and ISA will be a thing for that free £700 a year or so), and I'm also going to use a cash bridge until state pensions come in - I'm 56.

Your plan appears a little bit inconsistent as you on the one side proposing to use your entire pot to buy an annuity, but on the other side if you don't buy an annuity, you want to leave your capital intact.

Possibly do some reading around withdrawal strategies and the so called 4% rule?  

Also keep in mind that even keeping your original capital amount intact, it would go down in real terms with inflation so even all other things equal, your income will decrease over time.

waveyjane

Doctor_Who said:

And I've had a Pensionwise session. It was a bit too generic for me I'm afraid as about half of my retirement investments are in an ISA (and yes, bed and ISA will be a thing for that free £700 a year or so), and I'm also going to use a cash bridge until state pensions come in - I'm 56.

Not sure what you mean by this? For a non-earner you can contribute £2880 net to a pension and get £720 pension tax relief, but there's nothing like this for ISAs!

Oops sorry I meant the other way around. Will edit that!

waveyjane

Pat38493 said:

waveyjane said:

Good point about not needing to use all the SIPP. I might do some calculations for perhaps using the growth portions of it for an annuity perhaps. 

BTW I should have made it clear that I'm just taking the yield from the ISA and SIPP and don't plan to sell the capital. I realise in terms of income, it's swings and roundabouts overall, but it's just a bit psychologically hard to sell things.

Oh forgot about death benefits, but that reduces the income so I think probably not. We don't need to pass on lots of stuff to the kids they should be able to fend for themselves!

And I've had a Pensionwise session. It was a bit too generic for me I'm afraid as about half of my retirement investments are in an ISA (and yes, bed and ISA will be a thing for that free £700 a year or so), and I'm also going to use a cash bridge until state pensions come in - I'm 56.

Your plan appears a little bit inconsistent as you on the one side proposing to use your entire pot to buy an annuity, but on the other side if you don't buy an annuity, you want to leave your capital intact.

Possibly do some reading around withdrawal strategies and the so called 4% rule?  

Also keep in mind that even keeping your original capital amount intact, it would go down in real terms with inflation so even all other things equal, your income will decrease over time.

Apologies - I mean that I have about 50% of my retirement investments in a SIPP, the other 50% in an ISA, and the rest in a cash bridge until SP comes in. I'm thinking of buying an annuity with one of them, not both. The investments are (mostly) paying divis at about 4%. Please don;t get distracted by the phrase "capital intact". I don't mean I think the capital won't change in value. 

I also don't want to get into discussion about SWR here - feel free to create another thread and I'll be happy to talk about that though.