Should I buy an annuity now, or... ?

GabbaGabbaHey

I'm 64, retired. Living off a reasonable DB pension, with full state pension to come in a couple of years. Mortgage and debt free, sufficient savings to cover most eventualities, and no financial dependents.

I also have two DC pension pots, which currently total about £78k. I like the idea of knowing that I have guaranteed income for the rest of my life, and so I'm thinking of using them to buy a rest-of-life index-linked Annuity to top up my DB and state pensions.

1. Is this a stupid idea? (If so, what else should I do with the money, other than blow it on cocaine and hookers?)
2. I have no use for the 25% tax free lump sum which I could take, and so plan to use it towards the annuity. Good/bad idea?
3. Is this a good time to buy an Annuity, or should I wait?
4. Am I OK choosing the best online annuity deal that I can find, or it worth paying an IFA to do this for me?

2nd_time_buyer

The "no financial dependents" sways things towards an annuity. Likewise if you are in relatively good health compared to your peers. Rates are generally much better now than they have been in recent years. Whether or not now is a good time or not to buy one? - my perspective would be that if you are sure the combined income will be sufficient going forward, then why not now?. 

xylophone

 You are currently a tax payer or will be once SP kicks in? The annuity would be taxable income so you would want to take the tax free pension commencement lump sum (s)?

There are other ways of accessing your DC pensions - an interview with Pension Wise could be helpful.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/book-a-free-pension-wise-appointment

QrizB

Without wanting to downplay the attraction of hookers & blow, maybe you could spend some of it on something more enduring

Assuming you own your home, how ready is it for your dotage? Do you have a ground-floor bath/shower room, for example, for when you're unable to climb stairs?

SVaz

A stair lift is cheaper than a downstairs bathroom, which most people don’t have room for anyway. 

Albermarle

For many having a mixture of guaranteed income ( DB +SP) and something more flexible like a DC pension is quite an attractive balance.

QrizB

SVaz said:

A stair lift is cheaper than a downstairs bathroom, which most people don’t have room for anyway. 

Personally, given a free choice I wouldn't choose a stair lift over a ground-floor bathroom.

2nd_time_buyer

QrizB said:

SVaz said:

A stair lift is cheaper than a downstairs bathroom, which most people don’t have room for anyway. 

Personally, given a free choice I wouldn't choose a stair lift over a ground-floor bathroom.

I have heard that (preemptively) moving to a bungalow or flat (with lift) is one of the worst things you do for your health, as climbing stairs is a very good way to maintain strength and balance/stability.

QrizB

2nd_time_buyer said:

QrizB said:

SVaz said:

A stair lift is cheaper than a downstairs bathroom, which most people don’t have room for anyway. 

Personally, given a free choice I wouldn't choose a stair lift over a ground-floor bathroom.

I have heard that moving to a bungalow or flat is one of the worst things you do for your health, as climbing stairs is a very good way to maintain strength and balance/stability.

Not sure fitting a stairlift will preserve those benefits, though?

Related to the OP, I was in conversation with a cardiac nurse a couple of weeks ago (we were waiting for different flights at Heathrow, and happened to be sat adjacent in the departure lounge). She said that she had to tell a surprisingly large number of her clients with persistent hart problems "come back once you've stopped taking cocaine".

ukdw

You could use the around £19.5k PCLS to fund a couple of years of state pension deferral, and then buy an annuity with the remaining 75%

OldScientist

GabbaGabbaHey said:

I'm 64, retired. Living off a reasonable DB pension, with full state pension to come in a couple of years. Mortgage and debt free, sufficient savings to cover most eventualities, and no financial dependents.

I also have two DC pension pots, which currently total about £78k. I like the idea of knowing that I have guaranteed income for the rest of my life, and so I'm thinking of using them to buy a rest-of-life index-linked Annuity to top up my DB and state pensions.

1. Is this a stupid idea? (If so, what else should I do with the money, other than blow it on cocaine and hookers?)
2. I have no use for the 25% tax free lump sum which I could take, and so plan to use it towards the annuity. Good/bad idea?
3. Is this a good time to buy an Annuity, or should I wait?
4. Am I OK choosing the best online annuity deal that I can find, or it worth paying an IFA to do this for me?

Others have answered 1) and 2)

3) It is a better time to buy an annuity than it was two years ago (current rates are quite a bit higher than they were). It is not possible to predict future rates, but on the one hand the rates will increase as you get older if bond yields stay the same but on the other hand, if bond yields drop then annuity rates will also drop and, additionally, the real value of your DC pension may grow, stay the same, or decline. In other words, the amount of real income you will be able to buy in the future is not guaranteed to be the same as now. 

4) Posters here have suggested that an IFA can get you a better deal (even after their fees). I also note that it may be worth combining your two DC pensions to avoid paying commission charges twice (no difference if they are percentage, but for flat fees there will be a difference).

I also note that it is important to consider the balance between guaranteed income streams (like the state pension, DB pension, and annuities) and liquid assets (like savings and DC pensions) and illiquid assets (like downsizing). Where this balance falls will be different for each of us.