Just can't decide between Drawdown, lifetime or fixed term annuity!

epsilon4900

I just can't decide between Drawdown or a lifetime or fixed term annuity for two of my pension pots combined. I keep going round in circles. I don't  want to take financial advice as I feel I should be able to work this out myself. Especially with a little help from my Forum friends!  I don't think I would have the confidence to manage the funds if I chose drawdown and am not sure I could live with the idea that it could go down as well as up or stay the same. I can't work out if a lifetime annuity is better because you potentially get it for longer so therefore may make more from it over time OR a fixed term one is better because you get slightly more per year even though it stops after a set time. No one knows how long we have anyway so what's the real difference between going for a 20 year fixed one as opposed to an open ended one? Any responses gratefully received! Thanks!

Marcon

epsilon4900 said:

I just can't decide between Drawdown or a lifetime or fixed term annuity for two of my pension pots combined. I keep going round in circles. I don't  want to take financial advice as I feel I should be able to work this out myself. Especially with a little help from my Forum friends!  I don't think I would have the confidence to manage the funds if I chose drawdown and am not sure I could live with the idea that it could go down as well as up or stay the same. I can't work out if a lifetime annuity is better because you potentially get it for longer so therefore may make more from it over time OR a fixed term one is better because you get slightly more per year even though it stops after a set time. No one knows how long we have anyway so what's the real difference between going for a 20 year fixed one as opposed to an open ended one? Any responses gratefully received! Thanks!

If you read your own post you've already ruled out drawdown.

You don't say how old you are, or give any info about other pension provision - both crucial things to take into consideration - so not sure how much help anyone here can be given the absence of facts!

If you choose (say) a fixed term annuity of 20 years, would your other pension provision provide enough for you to live on? Do you need the 'extra' income you'd get from a fixed term rather than lifetime annuity? Do you have a house you could sell to fund care home fees to give you a choice about how to spend your final months, should that prove necessary?

epsilon4900

Thanks Marcon! Yes I have pretty much ruled out drawdown. I wish it felt right for me as others on these forums seem to do very well with it but I doubt I have either the skills or knowledge for it nor the interest in putting that sort of work in. That probably sounds very complacent but it is honest. I am 61 soon to be 62. I have three pension pots. I want to leave one alone for at least another 5 years as it is accruing steadily or has been. It has around 54 k in it at the moment and I don't contribute. Can't according to the rules as it has been paid up for too long? More than 25 years. All are direct contribution. I want to combine two to make a value of 58 k and take a tfls.  I do have some equity in a property so I could sell that if I needed to fund care and I have some separate savings too. I am thinking that over the next 5 years till OAP pension if I make it to 67 the extra amount of a fixed term annuity would be very welcome.

epsilon4900

I plan to pull back from my self employment over the next few years so need to bump up my income accordingly.

Marcon

epsilon4900 said:

Thanks Marcon! Yes I have pretty much ruled out drawdown. I wish it felt right for me as others on these forums seem to do very well with it but I doubt I have either the skills or knowledge for it nor the interest in putting that sort of work in. That probably sounds very complacent but it is honest. 

Probably because people don't rush to admit they've failed spectacularly - or because drawdown it still a relatively new concept and we have yet to see the longer term impact. Also bear in mind this forum is used by a tiny, self-selecting minority of individuals, so you aren't getting a 'typical view' of anything much.

Far from being complacent, it sounds as if you've done that rare thing: correctly assessed what works for you, regardless of how much sites like this appear to implore you to do something else!

dunstonh

I don't think I would have the confidence to manage the funds if I chose drawdown and am not sure I could live with the idea that it could go down as well as up or stay the same.

So, really your choice should be between lifetime annuity or fixed term annuity.  You are eliminating drawdown.  However, how did you feel about your pension fund going up and down during the accumulation years?

 I can't work out if a lifetime annuity is better because you potentially get it for longer so therefore may make more from it over time OR a fixed term one is better because you get slightly more per year even though it stops after a set time.

You cannot work it out as you don't know what the annuity rates will be at maturity on a fixed term annnuity.

Annuity rates are currently at a 15 year high.     Taking out a fixed term annuity would need you to have poorer health or higher annuity rates to roll it over.     The cost of taking out multiple fixed term annuities needs to be considered as well.   You will be subject to commission deductions on DIY (often greater than the advice fee from advisers) and lifetime annuities pay once.  Fixed term pay with each purchase.

I have pretty much ruled out drawdown. I wish it felt right for me as others on these forums seem to do very well with it but I doubt I have either the skills or knowledge for it nor the interest in putting that sort of work in.

Whilst you have ruled out an adviser and want to do it yourself, is that choice perhaps handicapping you and pushing you in a direction that may not be optimal?

 I have three pension pots. I want to leave one alone for at least another 5 years as it is accruing steadily or has been. It has around 54 k in it at the moment and I don't contribute. Can't according to the rules as it has been paid up for too long? More than 25 years.

Around 4 out of 5 legacy pensions are best moved to modern plans.   Do not let the scheme rules prevent you doing what is optimal. 

Mix and match is also a viable option for many.  It doesn't have to be all of one.

xylophone

Have you checked your state pension forecast?

https://www.gov.uk/check-state-pension

You could book a Pension Wise appointment for guidance on your options.

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

Or, as it seems likely that you would be choosing the annuity route and other posts on the forum have indicated that a financial adviser 

might be able to get you a better rate than going DIY, it might be to your advantage to engage an IFA to look over all three pensions 

and find the best way forward for you?

You could try

https://adviserbook.co.uk/

Tick "confirmed independent" and other options as required.

MEM62

epsilon4900 said:

I just can't decide between Drawdown or a lifetime or fixed term annuity for two of my pension pots combined. I keep going round in circles. I don't  want to take financial advice as I feel I should be able to work this out myself. Especially with a little help from my Forum friends! 

It is a very big decision.  In fact it is one of the bigger decisions that you will make in life yet you want to make it relying on forum opinions rather than taking professional advice?  

epsilon4900 said:

I don't think I would have the confidence to manage the funds if I chose drawdown and am not sure I could live with the idea that it could go down as well as up or stay the same. 

The lack of confidence is another indicator that you need the advice of an IFA.  As for the pot value going up and down, it has been doing that for the entire time that you have been investing for retirement.  Were you previously worried about it?  

epsilon4900 said:

I can't work out if a lifetime annuity is better because you potentially get it for longer so therefore may make more from it over time OR a fixed term one is better because you get slightly more per year even though it stops after a set time. 

There is always an element of guess worm involved - particularly as things like market performance a life expectancy cannot be precisely predicted.   And you do realise that and IFA will usually get you better terms on an annuity that you will get by going directly to the provider don't you?

epsilon4900 said:

Any responses gratefully received! 

Everything about your post suggests that you need to be taking professional advice.  

epsilon4900

Thanks both!

MARCON I like the predictability of the income with an annuity. I am a worrier by nature and I just know I would have sleepless nights with drawdown. That's just how I am. I may as well face it. 

DUNSTON H  That is an excellent point about the accumulation years. In fact all three pension plans ( which is one to which I have been contributing for a decade now after around a decade of it being dormant and the two other ones which to which I have not added for between 25 and 30 years ) have only gone up? Albeit sometimes very slowly and one has hardly gone up at all. The major thing which upset me was with the one to which I subscribe as they reduced their bonus in January and never bothered to tell me? Curiously the other one I have with the same company actually increased their bonus at the same time so it offset it to some degree. So what I am saying is that there really has not been that much turbulence over the years. Main gripe is with one that it's hardly risen at all.

Interesting point about fixed term as opposed to lifetime annuities. Worth considering further. Thank you.

I just also know I would have a HUGE problem trusting ANY financial adviser to whom I was going to pay a fee and also frankly to one if there were no fee and it was some kind of a commission thing. I would just find it hard to trust any full stop. I don't know how to avoid feeling they just look at me with dollar signs in their eyes? Is that so unfair of me! I wonder if it may be possible to get an annuity broker to agree to partially at least reimburse me for the commission they give to whomever?

I am inclined to let the one which is accruing nicely with no new funds from me having gone in for at least 30 years to get on with it for a few more years. I do wonder if I should defer that fund for a year at a time going forward or tell them longer? I know the nearer you get to taking money from a DC pension it can change how they invest the funds and so on? I don't want to muck up the increases which have been happening for some while now?

I do want to combine the two with less in them and take a TFLS. I just have to decide between a fixed or lifetime annuity. Thanks again to you.

JohnWinder

'what's the real difference between going for a 20 year fixed one as opposed to an open ended one?'

A lifetime annuity has a unique feature, seen by those who choose such an annuity as a benefit: some of the wealth of those with the annuity who die before they should, have some of their wealth handed to those who live longer than they should, gratis. Free money.

If you choose that, give very careful thought to whether it should be inflation linked; for a long life it's a big safety feature to avoid having your spending cut too much if inflation is significant (get out your compound interest calculator to determine significance).

epsilon4900

Thanks John, Unless I misunderstand you which is of course perfectly possible I think you are indicating some kind of altruism on my part if I chose the lifetime annuity and didn't last very long into it? Eg the company has more money to pay out to others but in all honesty I am considering the benefit/s of this for me? I'm sure that's not very altruistic of me but I regard these pots as for me as they all represent monies for which I worked hard albeit invested on my behalf?  I am not convinced about the inflation thing as it seems you get much too less to begin with only to increase later but no one can say you will live long enough to really benefit from that?