Annuity dilemma

OldMusicGuy

waveyjane said:

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?

Yes. I was not intending to buy an annuity until I was 75  at the very earliest (and maybe not even then). I used nearly half my SIPP to buy an RPI linked annuity with 50% spousal benefit at the end of last year aged 65. I am very glad I did because I have no DB income and this together with SP gives me a good inflation linked income base. I am now no longer worried about what is happening with the rest of my SIPP, happy top leave that alone for the long term.

The rate I got was excellent, rates seem to be back to where they were or slightly higher when I bought. Don't wait for things to get better. Rates are really good now, do an assessment based on what you can get today and decide if that fits your strategy or not.   

waveyjane

Thanks @OldMusicGuy - good to know. As ever, I'll need to look at things in more detail, but on the face of it, buying an annuity on retirement seems like a good idea. And as @sgx2000 points out, if I set my sights on covering living costs with it, I might keep the rest invested as they are today. I think @donestoneh put is best:  "balancing the certainty of income against the capital foregone".

tichtich

Hi Waveyjane. Good question. I've been thinking about buying an index-linked annuity, though most likely won't do it in the end. Anyway, here's my thinking.

I'm 65, but aiming to keep working part time for a few more years. From an internet search (which might not be reliable) it looks like I could get an index-linked annuity in the region of 5% at age 66 (single life, no guarantee period, no health impairment). I also looked up the average remaining life expectancy for a man at age 66, and it's in the region of 20 years. So very roughly speaking, based on those figures, it looks like if I live the average time I will just get my money back in real terms (20 years at 5%). So no real returns on my money. That said, the average life expectancy includes people in poor health, so arguably the life expectancy for a relatively healthy 66 year old (not entitled to an impaired annuity) is longer, in which case I can expect some real returns. Still, I would be sacrificing most or all of my potential real returns if I go for the security of an annuity rather than investments.

If I don't buy an annuity, I'm planning to invest my pension pot mostly in defensive stocks that pay a good dividend, and hoping (perhaps rather optimistically) to earn about 5% in dividends and withdraw just the dividends, leaving my real principal intact. For the sake of argument, let's suppose I succeed in that. Then I would be getting 5% income either way (annuity or dividends). The choice is then between safety (annuity) or keeping my principal intact (dividends).

I haven't got children to leave money to, so I don't need to keep my principal intact for that reason (though my niece may be disappointed). However I would like to keep my principal intact for a possible late life annuity to pay for residential care if I need it. Or possibly for other unforeseen circumstances.

I think you said in your OP that an annuity would give you 20% more income. That could correspond to me earning only 4% real return on my investments, which is perhaps more realistic. That does make the annuity option more attractive in comparison. But I'm still leaning more towards keeping my investments.

fizio

Having discarded annuities (after being forced to buy one at 2% a couple of years back) I am having another look. The majority of my pension has been taken with the last 200k ish left in drawdown (maxed 25% and exceeded LTA). I am not really in need of extra income (have DB as well) and my plan was to simply drawdown over next 7 years (before SP) while avoiding HRT band. With the freezing of allowance and hight savings interest rates, it's now not possible for me to avoid HRT already so mulling over what to do.

The best annuity quotes I have had are >6% (single life no increase) which seems very decent - aside from the tax bracket). I guess I am asking what I should be considering assuming my goal is to take this 200k at some point while factoring un my tax position. Risk, time, health are not really an issue currently and am I am pretty well diversified already.

waveyjane

@tichtich What you said about getting 4% reminded me that I don't have all of my SIPP invested in income-bearing vehicles. So I could re-jig it to aim a bit higher. But I doubt I'd average more than 4.5% long term. What I might get is 6% one year and 4% the next though - so approximating the income from a currently rated annunity, just lumpier? Pair that also with your good point about residential care and I'm back to favouring staying invested. Meanwhile, people are also now looking at bonds again. Argh!

@fizio seems in a more complex position with tax at least (I will have most of my income from an ISA so the HRT issue isn't there).

As a pathtic aside: If I were in charge of the world, I'd make it so that no normal person like me would ever need to become an amateur financier in their middle age just to survive escaping from work. I hate all this stuff, I really do.

QrizB

waveyjane said:

As a pathtic aside: If I were in charge of the world, I'd make it so that no normal person like me would ever need to become a amateur financier in their middle age just to survive escaping from work. I hate all this stuff, I really do.

Buy an annuity and it all becomes someone else's problem.

But that's where this thread started, I think!

sgx2000

I have just had my 'in house' Pension Annuity quotes from Aviva..... Disappointing
But interesting....
They quoted £5,581.08  but then said in a full market search I could get £6,226.56 elsewhere (not stated where)..
a £645.48 per year. difference
The highest I can find is with L&G through HL..    £5,936.28
a £355.20 per year better offer than my pension fund Aviva

So,  now starts the whole process again with HL.....

I too hate all this.
But, over a 20 year retirement, it would be over  £7100  difference
You have to just do it.....

Anyone have any idea who the £6226 quote would be from ????

handful

I've never tried it but there are comparison sites available. https://annuity.uk.com/landing/?v=latest-annuity-rates-1&keyword=best%20uk%20annuity%20rates%202023&network=g&device=c&creative=642063777829&matchtype=e&gad=1

g002ahe

I have just funded a £300k annuity with around 40% of my total SIPP fund. I did this to diversify risk.

• My Age:59
• Spouse Age:52 (50% of annuity to spouse after my death)
• No health issues
• 3% increase per annum (I could have gone for RPI instead at a slightly lower annuity, but chose fixed increase.)
• monthly in arrears

L&G gave me the best annuity quote at  £12,134.52 PA, coupled with a £2,575 cashback from the broker.

I could have added the £2,575 back into the annuity if I had wanted, which would have increased it by around £100PA.

Steve_666_

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!

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?

Yes, or at least partially. Was intending to use 1/2 my pension + ISA in that way, the other 1/2 was going drawdown using something akin to the 4% rule.
yes am also concerned that dementia might rob me of the ability to manage it later...