Annuity dilemma

waveyjane

So - can we get back on topic, please? To re-cap:

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?

Based on what @dunstonh said about Level Lifetime annuities going up consistently for nearly 2 years, I might wait it out and buy one later if that's the trend. Was just curious if anyone else was thinking similar.

dunstonh

You won't know the peak.    6 weeks ago, everyone thought we were at or near peak interest rates.   Now there are concerns that a second wave of inflation is coming and that further rises are on their way.   That may or may not happen as data is mixed and we don't know what the weather will be.

MarkCarnage

As @dunstonh says, you won't know it, and if any of us did, we would be sunning ourselves somewhere expensive! Rates are more attractive than they were, but the other side of the shoe is that the value of assets in the portfolio being used to buy an annuity is almost certainly lower, though maybe not as much as the improvement in annuity rates...which have also improved due to mortality assumptions.
Your decision to buy an annuity or not should be influenced by whether the current rate on offer meets your expected requirements, balancing the certainty of income against the capital foregone, rather than trying to second guess whether rates will keep improving. As others have said, a partial annuity purchase gives a foot in both camps. 

sgx2000

Hi Waveyjane

I am in almost the same position
I am 63 with slightly over 2 years until state pension
I have a DB pension already in payment
And a current workplace pension 
My DB pension and the state pension will almost cover my current yearly expenditure

So my current workplace pension is about £78k 

I have asked Aviva (current pension) for 4 quotes
Single life, Flat pension with 10 year guarantee after 25% tax free cash
Single life, Flat pension with 10 year guarantee with full pot used
Single life, RPI pension with 10 year guarantee after 25% tax free cash
Single life, RPI pension with 10 year guarantee with full pot used

I am awaiting their email quotes
I have a few medical conditions so am expecting an enhanced range of quotes

I have found the HL annuity calculator really handy
You can put in all your medical conditions and get quotes from 5 or 6 different providers

My quotes from Hl for the above are approx scenerios 
£4,576
£6,078
£2,899
£3,879

My reasoning is for perhaps having a preference for Annuities is....

1. Annuity quotes are at a 14 year high and the rates are more likely to drop than rise

2. The thing that everyone seems to miss about drawdown is that we do not know how our mental acuity will be as we age....Are we going to be capable of making all the decisions needed with a drawdown pension???

3. (a personal one)  Aviva insist on "life-styling" my workplace pension and If I leave it longer it will pretty much all be in their 'low risk' in house fund   (yes I know I can change this  ISH.....  Oh! and the whole fund has been cr*p for the last 2-3 years....  yes I know they all have

My current choice would probably be either....

Single life, Flat pension with 10 year guarantee with full pot used   at £6078  .....hoping that inflation does not rocket again

Or

Single life, RPI pension with 10 year guarantee with full pot used at £3879  and never have to think about it or worry that my income will drop ever again

waveyjane

Ah, thanks for that @sgx2000! I think there is a lot to be said for swapping a bit of "upside potential" in drawdown for peace of mind with an annuity. I guess this is where I was coming from mainly. Although I was really only thinking of using half my pot rather than all of it, so the mental acuity would still be needed for the remainder!

sgx2000

I suppose the balanced aproach would be to secure your essential expenses with an annuity, then take more of a risk with the remainder of your pension fund...

For me it is about sorting my pension now.... then adding to my cash pot while still working... although, I may ask to go to 4 days until retiring in the near future

wjr4

sgx2000 said:

Hi Waveyjane

I am in almost the same position
I am 63 with slightly over 2 years until state pension
I have a DB pension already in payment
And a current workplace pension 
My DB pension and the state pension will almost cover my current yearly expenditure

So my current workplace pension is about £78k 

I have asked Aviva (current pension) for 4 quotes
Single life, Flat pension with 10 year guarantee after 25% tax free cash
Single life, Flat pension with 10 year guarantee with full pot used
Single life, RPI pension with 10 year guarantee after 25% tax free cash
Single life, RPI pension with 10 year guarantee with full pot used

I am awaiting their email quotes
I have a few medical conditions so am expecting an enhanced range of quotes

I have found the HL annuity calculator really handy
You can put in all your medical conditions and get quotes from 5 or 6 different providers

My quotes from Hl for the above are approx scenerios 
£4,576
£6,078
£2,899
£3,879

My reasoning is for perhaps having a preference for Annuities is....

1. Annuity quotes are at a 14 year high and the rates are more likely to drop than rise

2. The thing that everyone seems to miss about drawdown is that we do not know how our mental acuity will be as we age....Are we going to be capable of making all the decisions needed with a drawdown pension???

3. (a personal one)  Aviva insist on "life-styling" my workplace pension and If I leave it longer it will pretty much all be in their 'low risk' in house fund   (yes I know I can change this  ISH.....  Oh! and the whole fund has been cr*p for the last 2-3 years....  yes I know they all have

My current choice would probably be either....

Single life, Flat pension with 10 year guarantee with full pot used   at £6078  .....hoping that inflation does not rocket again

Or

Single life, RPI pension with 10 year guarantee with full pot used at £3879  and never have to think about it or worry that my income will drop ever again

Why would you use the full pot and lose the tax free cash? Take the tax free cash and use that to purchase a Purchased Life Annuity? 

sgx2000

Thanks for the reply...
But, that would just give the same return.....

GSP

dunstonh said:

You won't know the peak.    6 weeks ago, everyone thought we were at or near peak interest rates.   Now there are concerns that a second wave of inflation is coming and that further rises are on their way.   That may or may not happen as data is mixed and we don't know what the weather will be.

Hi dunston,
With your post earlier in this thread which contained “ Fixed term annuities appear to have peaked and have been falling back”, In view of this backdrop that rates might go up, I wonder why fixed term annuities have fallen? Do you think their decision was a bit premature to drop rates in this product?

Albermarle

sgx2000 said:

Thanks for the reply...
But, that would just give the same return.....

Not as I understand it.
When you buy a purchased life annuity ( effectively with your own money rather than a pension pot), you pay a lot less  less tax on the income than you would with a 'normal' annuity, which is subject to normal income tax.
Although as always how much tax you pay will depend on your personal tax situation.
A downside to a purchased life annuity is the annuity rates tend to be a bit less than a normal pension annuity.

 The thing that everyone seems to miss about drawdown is that we do not know how our mental acuity will be as we age....Are we going to be capable of making all the decisions needed with a drawdown pension???
This topic crops up regularly in different threads . Many 'drawdowners' have a plan to probably buy an annuity at a later stage, if they feel they are starting to struggle.
Another strategy is for even experienced DIY'ers to employ an IFA at a later stage for the same reason, and to later assist surviving family members who have less knowledge in this area.