Is now a good time to take an annuity ?

OldScientist

As others have said, a single life, RPI annuity at 55yo would give you about £3.3k per year. Since you have an other half, a more useful comparison would be to use either a single life annuity with a guarantee period equal to the horizon in the table below (the annuity tool at https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities is informative) or a joint annuity with 100% survivor benefits.

In order to make a proper comparison, let's have a look at historical inflation adjusted withdrawals for a UK drawdown (I'm using the UK calculator at https://www.2020financial.co.uk/pension-drawdown-calculator/ ). The amount of sustainable, inflation adjusted, income will depend on the planning horizon and the portfolio allocation. In the following table, I've used 65% stocks and 35% bonds.

Horizon (years) Sustainable income (£k)
25                        3.3
30                        3.0
35                        2.7
40                        2.6
45                        2.4

I'll note that the survival probabilities for a male aged 55 are about 60%, 50%, 35%, 15%, and 4% for horizons of 25, 30, 35, 40, and 45 years, respectively (see https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07 ). In other words, a 40 year planning horizon isn't out of the question and a bit more for a couple.

ukdw

I just bought one  - so I would say yes. Only went for a percentage of pot, and I went for a Level with 30 year guarantee - rather than RPI protected - as I am hoping to get a good level of  inflation protection from the assets within the rest of my drawdown post.  

Having an annuity has also allowed me to increase the growth potential (volatility risk) of my drawdown pot too due to having a bit more guaranteed income,

Bought through an IFA - but the rates available direct through HL for example look pretty similar - and it is fairly easy to try out different types of annuity and amounts etc. using their site once you have filled out all of the medical stuff etc.

TJ666

@westv I believe @af1963 did their calcs by diminishing the level annuity value of £5,700 by 3% each year, then cumulatively adding up these values, I get it to be 24 years, but I'm happy to stand corrected.  I.e. not a simple £100k / £5,700 calculation. 
However, if you put some growth (above inflation) on the £100k, to model keeping the money invested, then yes, I should keep it invested.  Thanks all, good to make sure I wasn't missing out on something.

westv

TJ666 said:

@westv I believe @af1963 did their calcs by diminishing the level annuity value of £5,700 by 3% each year, then cumulatively adding up these values, I get it to be 24 years, but I'm happy to stand corrected.  I.e. not a simple £100k / £5,700 calculation. 

That's where I disagree with the calcs though. The buying power may diminish but the actual amount doesn't so 100,000/5700 = 17.54

mark_cycling00

I believe that once you take any form of pension you are severely limited in being able to add to any other pensions. 

Look into this if it worries you. 

If one day you do a little consultancy or self employment and start paying income taxes then maybe it will be a consideration 

Albermarle

mark_cycling00 said:

I believe that once you take any form of pension you are severely limited in being able to add to any other pensions. 

Look into this if it worries you. 

If one day you do a little consultancy or self employment and start paying income taxes then maybe it will be a consideration 

That is not correct.
Taking a annuity, or starting to take a DB pension has no effect on your ability to add to a pension in future.
Similarly taking only tax free cash from a DC pension has no effect.
Only taking taxable income from a DC pot triggers the MPAA and restricts adding more than £10 Kpa to a pension.
So if the OP took UFPLS payments as originally intended, then this would trigger the MPAA limit, but taking an annuity would not.

Albermarle

OP
Be aware you can buy term annuities ( as opposed to Life ones) You can buy one to last 10 years for example, and it could return a significant sum at the end, depending on how it is set up and what level of income you take.

jamesd

mark_cycling00 said:

I believe that once you take any form of pension you are severely limited in being able to add to any other pensions. 

Look into this if it worries you. 

If one day you do a little consultancy or self employment and start paying income taxes then maybe it will be a consideration 

@mark_cycling00 As Albermarle wrote that is not certain and depends how you do it. It only applies to "flexible drawing" of taxable money so all of these are fine and don't trigger the £10k a year money purchase annual allowance:

1. Buying one or more annuities.
2. Taking 25% tax free lump sum and placing the 75% into Flexi-access drawdown for later.
3. Using the small pots rule to take all of a pot worth up to £10k three times in your life. Can combine or split first to get to £10k. 25% tax free and 75% taxable.
4. Taking a defined benefit pension like final or average salary.

These do trigger the MPAA:

A. A UFPLS lump sum, what will be the most often mentioned way on sites, probably. 25% tax free PCLS and 75% taxable.
B. Taking any of the 75% taxable from a flexi-access drawdown pot.

Except for the small pots rule all of these can be done with part of a pot.

It's very common to do as you were thinking and avoid the MPAA by using 2 and 3.

jamesd

ukindexinvestor said:

absolutely not worth it, keep the money in the market. reset studies came out recently that its best to be 100% equity in stocks even in retirement

I'd also be interested in more on this, particularly what "best" means. In general studies have shown that high equities leads to better average and best cases but lower safe withdrawal rate than something like 60:40 or 65:35.

jamesd

Af1963's thought about a level annuity also looks interesting, with a brief period of high inflation ending. In essence this treats it a bit like a term annuity, with inflation reducing the value over time but giving you a higher starting amount during the bridging years.

Term annuities are a less competitive market so you may get a better overall deal too.

OldScientist's thought on guarantee period vs dual life is also interesting. The guarantee will pay out for the specified number of years from purchase even if you die. Provided that's not too ma y years it can be cheaper than dual life. Term life insurance from the higher income is another possible way. Maybe decreasing term like mortgage protection or a few policies with shorter to longer terms to match the remaining income flow.