Personal Pension with Guarantee

BarbaraG2000

My husband and I gave up work a couple of years ago and  are currently living on a monthly income drawn from our ISA’s.  This was the advice from our IFA at the time, so as to reduce the size of our estate to limit IHT. We’ve since decided we don’t care about that since we have no children, and are going to restructure things shortly to put our personal pension pots into drawdown, so we are using our personal allowances.

My husband has a small personal pension pot originally set up with Guardian, now with ReAssure. At the last review, the pot itself was just over £30K, but because it has a guarantee attached, the pension they are estimating for him if he takes it at 65 (in February 2025) was £3,260, whereas the open market was likely to offer around £1,300.  

So, obviously, he will take an annuity via ReAssure - apparently they use LV= and offer a range of options, but his guarantee is still effective as long as he goes down this route.  In addition to these he has a small DB pension of around £5K per year from age 66, full entitlement to state pension, and his personal pension pot of around £320K.

The headline quote above assumes a level annuity for life, no minimum period and no survivor’s benefit.  My thinking is that having an income which goes up with inflation is worth doing, even though from what I can see it would reduce the annuity by about a third.  A survivor’s pension would take off at least another 10%….. but I have full state pension entitlement, two DB pensions of my own which add up to more than full state pension, plus a personal pension pot which could potentially add the same again.  My husband’s small DB pension has a survivor’s 50% pension and I would inherit what is left of his personal pension pot.  Plus what remains of his ISA’s on top of my own - so I think I’ll be fine.

I came on here with the intention of asking what people think about 

1) Level annuity versus inflation linked (I’m leaning towards inflation linked)
2) Survivor’s pension or not (I’m leaning towards not)

But in writing all this down, I’ve realised that the pot with ReAssure is such a small proportion of the whole, that it probably doesn’t matter that much.

Marcon

BarbaraG2000 said:

My husband and I gave up work a couple of years ago and  are currently living on a monthly income drawn from our ISA’s.  This was the advice from our IFA at the time, so as to reduce the size of our estate to limit IHT. We’ve since decided we don’t care about that since we have no children, and are going to restructure things shortly to put our personal pension pots into drawdown, so we are using our personal allowances.

My husband has a small personal pension pot originally set up with Guardian, now with ReAssure. At the last review, the pot itself was just over £30K, but because it has a guarantee attached, the pension they are estimating for him if he takes it at 65 (in February 2025) was £3,260, whereas the open market was likely to offer around £1,300.  

So, obviously, he will take an annuity via ReAssure - apparently they use LV= and offer a range of options, but his guarantee is still effective as long as he goes down this route.  In addition to these he has a small DB pension of around £5K per year from age 66, full entitlement to state pension, and his personal pension pot of around £320K.

The headline quote above assumes a level annuity for life, no minimum period and no survivor’s benefit.  My thinking is that having an income which goes up with inflation is worth doing, even though from what I can see it would reduce the annuity by about a third.  A survivor’s pension would take off at least another 10%….. but I have full state pension entitlement, two DB pensions of my own which add up to more than full state pension, plus a personal pension pot which could potentially add the same again.  My husband’s small DB pension has a survivor’s 50% pension and I would inherit what is left of his personal pension pot.  Plus what remains of his ISA’s on top of my own - so I think I’ll be fine.

I came on here with the intention of asking what people think about 

1) Level annuity versus inflation linked (I’m leaning towards inflation linked)
2) Survivor’s pension or not (I’m leaning towards not)

But in writing all this down, I’ve realised that the pot with ReAssure is such a small proportion of the whole, that it probably doesn’t matter that much.

I think you've found what so many people find: structuring your thoughts on paper (albeit virtual paper in this case) can often help you work out what matters to you and enable you to take a decision. Given that you're the person who knows yourself best, that's highly likely to be the right decision for you in your circumstances.

Linton

1) If the money was essential for day to day living then I suggest that inflation linking  is highly desirable/essential.  Otherwise, particularly if you have reasonable cash savings a fixxed rate annuity may well be better.  In any case £3260/year wont be life-changing.

2) You need a well-considered survivor's plan.  That will determine whether a survivor's pension is needed.

dunstonh

My thinking is that having an income which goes up with inflation is worth doing

its probably not as the breakeven point on these, using reasonable assumptions, is usually after your life expectancy.

 A survivor’s pension would take off at least another 10%

Are these provided using a recalculation of the GAR terms or from an open market option?   
Many providers will reshape the GAR using the default GAR as the starting point.   However, not all do this and will revert to using open market terms.

BarbaraG2000

Linton said:

1) If the money was essential for day to day living then I suggest that inflation linking  is highly desirable/essential.  Otherwise, particularly if you have reasonable cash savings a fixxed rate annuity may well be better.  In any case £3260/year wont be life-changing.

2) You need a well-considered survivor's plan.  That will determine whether a survivor's pension is needed.

1) That makes sense

2) My back of envelope calculations are saying it isn’t.  But I can see that I need to put things down in more detail, including how much of our current expenditure would disappear with one or other of us gone and how much wouldn’t, and do it both ways as well.