Annuity

chrismriley

Hi
I am confused about taking an annuity from a SIPP, specifically how the 25% tax free withdrawal impacts your annual take home. I have £200k in the SIPP so if I take 25% tax free i.e. £50k at age 57, then I have £150k left. The estimate take home is £10k p/a so after 15 years I would take home £150k, therefore, if I live past 72 years I will be making more money? as opposed to leaving the money in the SIPP and not having an annuity but withdrawing £10k p/a from the SIPP? This is my understanding of how it works, is this right? but the online annuity quote is saying I will break even at age 77, which is what is confusing me. Please could anyone clarify? thank you for any help, Chris

Dazed_and_C0nfused

chrismriley said:

Hi
I am confused about taking an annuity from a SIPP, specifically how the 25% tax free withdrawal impacts your annual take home. I have £200k in the SIPP so if I take 25% tax free i.e. £50k at age 57, then I have £150k left. The estimate take home is £10k p/a so after 15 years I would take home £150k, therefore, if I live past 72 years I will be making more money? as opposed to leaving the money in the SIPP and not having an annuity but withdrawing £10k p/a from the SIPP? This is my understanding of how it works, is this right? but the online annuity quote is saying I will break even at age 77, which is what is confusing me. Please could anyone clarify? thank you for any help, Chris

I think you are getting confused.

What do you mean by "annual take home" 🤔

If you buy an annuity paying say £10k per year then £10k is your taxable income but you might "take home" a lot less than that if you have a tax code which say includes State Pension income.

Do you plan on buying a level annuity or one with annual inflation increases?

If you left the money in the SIPP would some or all of it be invested and, fingers crossed, be increasing in value due to investment returns?  Or would you be leaving it in cash, maybe not even earning any interest?

chrismriley

thank you.
If I left money in the SIPP then I would expect interest at the moment it is 3.5% as cash, no investing.
Sorry take home should actually say pre any tax deductions.
I would want an annual inflation increase annuity.
Many thanks
Chris

Dazed_and_C0nfused

chrismriley said:

thank you.
If I left money in the SIPP then I would expect interest at the moment it is 3.5% as cash, no investing.
Sorry take home should actually say pre any tax deductions.
I would want an annual inflation increase annuity.
Many thanks
Chris

So you would have something left in your SIPP after 15 years.

Have you checked possible annuity options, I might be a bit out of touch but an inflation linked annuity paying £10k from a £150k pension fund sounds a bit on the high side, even if inflation proofing was fixed/limited to say 2-3%.

chrismriley

Yes nothing left in SIPP after 15 years.
Will re-check options, thank you

QrizB

Dazed_and_C0nfused said:

Have you checked possible annuity options, I might be a bit out of touch but an inflation linked annuity paying £10k from a £150k pension fund sounds a bit on the high side, even if inflation proofing was fixed/limited to say 2-3%.

Current HL best buy table here:

£150k at age 65 would buy ~£10900 level, ~£7900 esc. at 3% or ~£7100 linked to RPI. That's single life; joint would be less.

4% drawdown would get you £6000.

Dazed_and_C0nfused

QrizB said:

Dazed_and_C0nfused said:

Have you checked possible annuity options, I might be a bit out of touch but an inflation linked annuity paying £10k from a £150k pension fund sounds a bit on the high side, even if inflation proofing was fixed/limited to say 2-3%.

Current HL best buy table here:

£150k at age 65 would buy ~£10900 level, ~£7900 esc. at 3% or ~£7100 linked to RPI. That's single life; joint would be less.

4% drawdown would get you £6000.

So whichever option, with inflation protection, is taken it's going to be significantly less than £10k if started at age 57.

dunstonh

Dazed_and_C0nfused said:

QrizB said:

Dazed_and_C0nfused said:

Have you checked possible annuity options, I might be a bit out of touch but an inflation linked annuity paying £10k from a £150k pension fund sounds a bit on the high side, even if inflation proofing was fixed/limited to say 2-3%.

Current HL best buy table here:

£150k at age 65 would buy ~£10900 level, ~£7900 esc. at 3% or ~£7100 linked to RPI. That's single life; joint would be less.

4% drawdown would get you £6000.

So whichever option, with inflation protection, is taken it's going to be significantly less than £10k if started at age 57.

There are some quote portals that give the maximum possible figure rather than the clean health figure.  I have seen that several times with people who have gone online where the actual figure after medical disclosures was nowhere near the initial figure they saw. 

The quote services have a detailed quote option that is personalised and quick & dirty quote option that if you say there are health issues then the quotation thows out the highest income rate possible.    Its purpose is to show the difference between clean health and what the possible maximum is.   But some sites don't present it that way and use it as a means to make them look better than they actually are.