Annuity Quotes and thoughts

MetaPhysical

I was playing round with the possibility of an annuity with my DC pot of £600k as a comparison to UFPLS.  Only used the annuity ready website at this stage.  When I'm ready to pull the trigger on this I will research some others.  Any recommendations???  I am 57 by the way.

I will also have DB pensions to the tune of about £27000 per annum.  I was almost certain to be going to UFPLS and taking 23k per year (to keep me below the 50270 limit).  However, the annuity payments seem quite reasonable.  I'm aware of loss of the pot in the event of early death etc so will look further into it and maybe a 10 year guarantee.

I punched my numbers and details into the annuity tool and with 50k tax free cash I'd be pulling £31000 a year from Legal and General annuity from the 550K annuity on a fixed sum basis with no guarantees and no partner benefit.  Do these quotes specify the gross that I will be paid or are charges to be taken off that as well?

I'm aware that these numbers take me above the 50270 threshold so I might take more TFC to lower the annuity payment to bring me below the 50270 total pension if I went the annuity route

Am I thinking rationally here please?

ali_bear

When it comes to thinking rationally I wouldn't be the one to cast doubt upon you. But you could be falling into the trap of being tempted by a simpler solution, because it is easier than to think about the more complex but very possibly more optimal one. 
I am also facing the possibility of edging into the the higher rate tax band after retirement. But I'd rather have £60 net from an income of £100 than nothing. 
Tax rates and bands change but your annuity would be fixed. A drawdown scheme gives you flexibility to deal with changes in life and the tax system. And you already have a substantial fixed DB income, in addition to state pension I assume.

Tightboy

Have you taken into account that you could get a state pension that could also tip you into the next tax band. I like the idea of the UFPLS as you could take more at the start and then reduce it once the SP kicks in to keep the tax exposure down.
BTW, that's a nice problem to have!.

MetaPhysical

Thank you guys, exactly my thoughts too.  Indeed, simpler is not necessarily better.

MetaPhysical

Tightboy said:

Have to taken into account that you could get a state pension that could also tip you into the next tax band. I like the idea of the UFPLS as you could take more at the start and then reduce it once the SP kicks in to keep the tax exposure down.
BTW, that's a nice problem to have!.

That has always been my plan but then I considered annuity as well.  After ten years that 31000 would only have half the purchasing power and if you want to build inflation adjustments into an annuity the rate implodes to less than half.  Also loss of the DC pot in the event of early death.

dunstonh

When I'm ready to pull the trigger on this I will research some others.  Any recommendations???  I am 57 by the way.

Typically, IFAs get the best annuity rates.  However, that is mainly due to the fee agreed with the IFA typically being lower than the commission taken on non-advised sales.  i.e. £450k pot paying 2% commission for non-advised annuity is £9,000 factored into the annuity rate.   Whereas an IFA charging £2000 is a smaller amount factored in.

Annuity rates are now falling and we are past the optimal point in this particular cycle.   At age 57, annuity rates are not going to be great.  Indeed, if you want some security then using a fixed term deposit in a pension may well be the better option and wait until the next cycle when interest rates rise to peak again (which is likely to be a decade or so).

Linton

MetaPhysical said:

I was playing round with the possibility of an annuity with my DC pot of £600k as a comparison to UFPLS.  Only used the annuity ready website at this stage.  When I'm ready to pull the trigger on this I will research some others.  Any recommendations???  I am 57 by the way.

I will also have DB pensions to the tune of about £27000 per annum.  I was almost certain to be going to UFPLS and taking 23k per year (to keep me below the 50270 limit).  However, the annuity payments seem quite reasonable.  I'm aware of loss of the pot in the event of early death etc so will look further into it and maybe a 10 year guarantee.

I punched my numbers and details into the annuity tool and with 50k tax free cash I'd be pulling £31000 a year from Legal and General annuity from the 550K annuity on a fixed sum basis with no guarantees and no partner benefit.  Do these quotes specify the gross that I will be paid or are charges to be taken off that as well?

I'm aware that these numbers take me above the 50270 threshold so I might take more TFC to lower the annuity payment to bring me below the 50270 total pension if I went the annuity route

Am I thinking rationally here please?

You need to consider inflation...

£31K from a £550K lump sum implies a fixed rate annuity.  Over the past 30 years prices have about doubled and could easily do the same in the next 30 years. Are you OK with that?

Is your DB pension fully inflation linked or capped?  If it is capped it will drift downwards from full inflation matching if there are individual years with inflation exceeding the cap.

Sarahspangles

MetaPhysical said:

Thank you guys, exactly my thoughts too.  Indeed, simpler is not necessarily better.

We’ve lost both sets of parents recently, and keeping it simple definitely helped them. Having their pensions and annuities effectively automated and predictable was, with hindsight, an advantage.

When it came to settling their estates we found a fair amount of muddle. That’s with ‘normal’ cognitive decline rather than dementia plus the sort of distress and disruption to be expected from loss of a spouse and some periods of illness.

If we didn’t have DB pensions I would want to consider an annuity to provide at least a baseline income.

MetaPhysical

My two x DB pensions ( one at 17k and the other 10k) are both inflation capped to 5%.

I agree with all points raised. Based on what's been said, that largely confirm what I have been thinking, I am pretty certain that UFPLS is the way to go for me.  It's just a question of what will the chancellor do with TFC and how much I would be able to UFPLS.  If it gets taken down to 100k then the tax free component of UFPLS wouldn't last that many years.

Many thanks again for replying and your thoughts.

theblueflash

dunstonh said:

When I'm ready to pull the trigger on this I will research some others.  Any recommendations???  I am 57 by the way.

“……,,.  Indeed, if you want some security then using a fixed term deposit in a pension may well be the better option and wait until the next cycle when interest rates rise to peak again (which is likely to be a decade or so).” 

On this point - when I look at the various investment options available in my GPPP with Fidelity (but seems to be the case with great many mainstream SIPP providers)  , other than “Cash” funds or Money-Market Funds - little seems to exist on a fixed-term basis? What kind of instruments exist - is it Bond Ladders etc , or something different? 

dunstonh

On this point - when I look at the various investment options available in my GPPP with Fidelity (but seems to be the case with great many mainstream SIPP providers)  , other than “Cash” funds or Money-Market Funds - little seems to exist on a fixed-term basis? What kind of instruments exist - is it Bond Ladders etc , or something different? 

That is because it is not a SIPP.    You tend to need to use a real SIPP if you want SIPP functionality.   The Fidelity workplace pension is a group personal pension, not a SIPP.        The availability of cash options vary across the SIPPs.  Some will have a handful of deposit options (typically from the likes of Investec). Others will have a wider range - but often those SIPPs are more expensive, so you need to take that into account.   SHPs and GPPPs and pretend SIPPs (marketing names only) will rarely have cash options other than money market funds.