Securing annuity rate early?

arthur_fowler

Bit of a long shot but ..
I plan to retire in about two years and I would like a full life annuity to be part of my plan. At the moment, annuity rates are good but it looks likely they could drop before I retire. 
I have two DC pots of which I am still heavily contributing to one. I could use the other to buy an annuity but I believe that would restrict my ability to keep adding to my other one between now and retirement.
I don't suppose there is any way to lock in a rate on the future purchase of an annuity is there?

QrizB

Others will be able to confirm but (based on previous threads) I think buying a lifetime annuity isn't "taking flexibile benefits" and won't invoke the MPAA.

jamesd

Taking income from an annuity or a workplace defined benefit pension like final or average salary causes no restriction on future pension contributions unless there's one in the defined benefit scheme rules, like some public sector schemes. No Money Purchase Annual Allowance restriction to £10k a year in, formerly £4k.

I agree that forecasts suggest that annuity rates are likely to be lower in two years.

No way I know of to lock in but you could buy now and spend the income you don't need on extra pension contributions. It's a decent approach if an annuity is right for you.

State pension deferral pays you more inflation linked income per Pound spent than buying annuities so I recommend going into five or ten years of that in preference to annuities for at least the starting part of your guaranteed income needs. If you have a spouse it's often good to protect them by helping them to defer their state pension. The increase is 5.8% of the state pension per year deferred and you also get the annual increases during the deferral time.

You don't need to spend all of your pot on annuities, you can put some into flexi-access drawdown and not withdraw that to avoid triggering the MPAA. You can buy more than one annuity. Perhaps a mix of some with inflation increases (but state deferral pays way more) and some level, never changing income without any inflation protection.

You can also transfer from the one you're paying into to the one used for the buy(s).

However you do the annuity buying an IFA is likely to get you a better deal as well as ensuring lifestyle and health factors are taken into account to get the increase for those.

arthur_fowler

jamesd said:

Taking income from an annuity or a workplace defined benefit pension like final or average salary causes no restriction on future pension contributions unless there's one in the defined benefit scheme rules, like some public sector schemes. No Money Purchase Annual Allowance restriction to £10k a year in, formerly £4k.

I agree that forecasts suggest that annuity rates are likely to be lower in two years.

No way I know of to lock in but you could buy now and spend the income you don't need on extra pension contributions. It's a decent approach if an annuity is right for you.

State pension deferral pays you more inflation linked income per Pound spent than buying annuities so I recommend going into five or ten years of that in preference to annuities for at least the starting part of your guaranteed income needs. If you have a spouse it's often good to protect them by helping them to defer their state pension. The increase is 5.8% of the state pension per year deferred and you also get the annual increases during the deferral time.

You don't need to spend all of your pot on annuities, you can put some into flexi-access drawdown and not withdraw that to avoid triggering the MPAA. You can buy more than one annuity. Perhaps a mix of some with inflation increases (but state deferral pays way more) and some level, never changing income without any inflation protection.

You can also transfer from the one you're paying into to the one used for the buy(s).

However you do the annuity buying an IFA is likely to get you a better deal as well as ensuring lifestyle and health factors are taken into account to get the increase for those.

Thank you very much. Good food for thought.
State Pension will be around 7 years after my retirement, and yes it could be a good idea to defer.

At the moment, one of my main concerns is having higher levels of income early in retirement where we have our health (hopefully) for travel knowing that we also have some DB schemes that will help from that point.

ukdw

Whilst state pension deferral seems to be better than annuity purchase for a few years from age 66 onwards - I think the rate remains at 5.8% - so at some point in the early 70s I suspect single life RPI linked annuity rates will start to beat it (the HL best buy table for example quotes about 6.8% at age 75) - so I wouldn't really consider more than 3 or 4 years worth of state pension deferral myself.

najan49

The seem to be some funds available which invest in the same assets as an annuity would.

So the value of these fund should more-or-less track the cost of an annuity, which should give you a way to lock in current rates - if rates fall (or rise) the fund value should rise (or fall) so that the same annuity income can be purchased.

arthur_fowler

najan49 said:

The seem to be some funds available which invest in the same assets as an annuity would.

So the value of these fund should more-or-less track the cost of an annuity, which should give you a way to lock in current rates - if rates fall (or rise) the fund value should rise (or fall) so that the same annuity income can be purchased.

Thanks although if I have the funds then I can invest in an annuity now anyway so not sure what the benefit would be.

ukdw

I believe some providers allow you to take an annuity now, but keep to payments within a drawdown account rather than coming direct to you - so you could save them up and no draw them down until 2 year time - when presumably it will be more take efficient.

I guess there are also deferred annuities - which may even have better rates than annuities that start now.

Hoenir

najan49 said:

The seem to be some funds available which invest in the same assets as an annuity would.

So the value of these fund should more-or-less track the cost of an annuity, which should give you a way to lock in current rates - if rates fall (or rise) the fund value should rise (or fall) so that the same annuity income can be purchased.

No, because the annuity is a pooled risk. Which enhances the guaranteed return on an individual basis.  

jamesd

ukdw said:

Whilst state pension deferral seems to be better than annuity purchase for a few years from age 66 onwards - I think the rate remains at 5.8% - so at some point in the early 70s I suspect single life RPI linked annuity rates will start to beat it (the HL best buy table for example quotes about 6.8% at age 75) - so I wouldn't really consider more than 3 or 4 years worth of state pension deferral myself.

Yes, there does come a point at which RPI annuities beat state pension deferring. At which point you switch, in part because annuities get 100% FSCS protection.

Some might also wonder whether the historic RPI being higher than CPI might continue and bring forward the annuity is better point 

westv

With State Pension deferral you also have to factor in the cost of lost income if there are two of you and you die before it comes into payment.