Annuity Purchase Cost

Bostonerimus1

MarkCarnage said:

Bostonerimus1 said:

MarkCarnage said:

Yes, they have also improved a fair bit over 2 years but not quite as much as over 3 years (which was close to the low point). However, they have improved because of the general shift in bond pricing and yields. 

Indeed, if you had an equity based portfolio, or even cash, you would have benefited from that, but holding bonds would have given some certainty of the (admittedly poor!) outcome throughout. Anyone who took a TV from DB and put it in equities/cash might want to think now about whether an annuity could be appropriate at least in part. 

Indeed, but I would point people to the Kitces article about the use of annuities in a retirement portfolio and how they compare with a cash and bond allocation. There is no one right answer here and every decision has trade offs which is one of the burdens associated with the choice people have today.

https://www.kitces.com/blog/understanding-the-true-impact-of-single-premium-immediate-annuities-on-retirement-income-sustainability/

Your last sentence summarises it. However, I think the decision is currently more balanced than it has been for some years as the guaranteed income stream is commensurately higher. The price of certainty of outcome may still be worth paying for some, and having a foot in both camps has more attractions now than it has done for some years. 

For what it's worth my take on this is to use annuities sparingly in addition to SP to cover essentials. They are expensive for what they deliver, but lots of people value a guaranteed lifetime income. If you do buy an annuity then buy it with fixed income assets so that your remaining portfolio has a high equity allocation.

westv

Annuities aren't as expensive as they used to be and they do offer a RPI return which is close to the UK SWR so I can see the attraction especially for those who have no interest in leaving a legacy.

FIREDreamer

Bostonerimus1 said:

MarkCarnage said:

Bostonerimus1 said:

MarkCarnage said:

Yes, they have also improved a fair bit over 2 years but not quite as much as over 3 years (which was close to the low point). However, they have improved because of the general shift in bond pricing and yields. 

Indeed, if you had an equity based portfolio, or even cash, you would have benefited from that, but holding bonds would have given some certainty of the (admittedly poor!) outcome throughout. Anyone who took a TV from DB and put it in equities/cash might want to think now about whether an annuity could be appropriate at least in part. 

Indeed, but I would point people to the Kitces article about the use of annuities in a retirement portfolio and how they compare with a cash and bond allocation. There is no one right answer here and every decision has trade offs which is one of the burdens associated with the choice people have today.

https://www.kitces.com/blog/understanding-the-true-impact-of-single-premium-immediate-annuities-on-retirement-income-sustainability/

Your last sentence summarises it. However, I think the decision is currently more balanced than it has been for some years as the guaranteed income stream is commensurately higher. The price of certainty of outcome may still be worth paying for some, and having a foot in both camps has more attractions now than it has done for some years. 

For what it's worth my take on this is to use annuities sparingly in addition to SP to cover essentials. They are expensive for what they deliver, but lots of people value a guaranteed lifetime income. If you do buy an annuity then buy it with fixed income assets so that your remaining portfolio has a high equity allocation.

This is precisely what I did as I wanted a reasonable guaranteed income for retirement seven years before state pension age.

Our utility and council tax bills are a horrendous £7,500 per annum for example and my pension needs to provide for a family not just myself.

The residual SIPP is invested in 80% global ETFs (crystallised pot) plus 20% cash (uncrystallised pot) for drawdown pre SPA only if needed.

westv said:

Annuities aren't as expensive as they used to be and they do offer a RPI return which is close to the UK SWR so I can see the attraction especially for those who have no interest in leaving a legacy.

This was my reasoning even though the annuity rates (3.8% for us) and SWR (3.5% give or take) are not strictly comparable apparently.

The peace of mind of removing some pension investments away from a future meddling government without paying an LTA charge on post crystallisation growth equivalent to one year’s annuity income (had I done so a year earlier) was ideal too. Thank you Mr Hunt.