A fixed term annuity question

MK62

incus432 said:

MK62 said:

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

Good idea, although for an 8 year term I'd probably stick to nominal gilts

That's why the (IL) is in brackets.......take your pick. However, whether you go for IL gilts or build in some form of inflation protection using escalating conventional gilt values, I certainly wouldn't want to go 8 years with no inflation protection at all.........RPI over the last 8 years has been about 46% (albeit including a nasty bout of high inflation a few years ago)

incus432

MK62 said:

incus432 said:

MK62 said:

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

Good idea, although for an 8 year term I'd probably stick to nominal gilts

That's why the (IL) is in brackets.......take your pick. However, whether you go for IL gilts or build in some form of inflation protection using escalating conventional gilt values, I certainly wouldn't want to go 8 years with no inflation protection at all.........RPI over the last 8 years has been about 46% (albeit including a nasty bout of high inflation a few years ago)

Yes it's a choice. It depends on whether you think the cost of protecting against inflation in terms of reduced payments is worth it.  I decided not recently on the grounds that we have other funds to cover any shortfall

Scrudgy

MK62 said:

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

It is Interactive Investor.

I will go and investigate gilt ladders. Thanks for the pointer.

Scrudgy

incus432 said:

MK62 said:

Who is your SIPP provider?

Depending on which platform you are using, a collapsing (IL) gilt ladder can perform the same task as a fixed term annuity, and might well be a bit cheaper. 

Good idea, although for an 8 year term I'd probably stick to nominal gilts

https://lategenxer.streamlit.app/Gilt_Ladder

gives cost of a flat £40k pa annuity (gross). - monthly income, zero tax (as inside SIPP) with SIPP platform paying 3% cash interest - as around 270k, depending on starting date. Excludes platform and trade costs

Update:-
Thanks to you both for planting the collapsing gilt ladder idea and the link to that excellent gilt ladder planning tool. I did exactly this and now have the next 8 years spending until state pension age all bought and first coupon due end of January, and first gilt maturity is paid in March. I will take the first monthly payment in April in the new tax year.

Main point was to take out the maximum I can before hitting 42% tax threshold (Scotland tax), so £43,662 per year taken in monthly payments. I didn't want index linked as the tax threshold isn't likely to change until 2028, so anything over the limit puts me into 42% territory. If inflation gets painful I can boost from other sources, so not a big concern.

The cost of the bond ladder was £4k cheaper than buying the fixed term annuity offered by Canada Life or Legal and General, although Canada Life has a £7k maturity rebate and L&G has a £4k maturity, however the gilt ladder actually has about £10k surplus also that can just return to the SIPP once all this is finished and state pensions have started.

I just wanted some fixed income to cover us until me and my wife's state pensions start, at which point I will either just drawdown, or repeat this process. The predicted gross yield is 4.4% over the duration, not including any cash interest of the coupons or matured gilts held in the SIPP until pay day. 

Given the issue I originally asked about was a problem, this gilt ladder is a good solution, and I can still access all this money at any time if I need to whereas the fixed annuity was a one time purchase. Thanks for the tips and link!

MK62

I'm glad it worked for you......... we are doing similar to you with in-pension gilt ladders providing SP equivalent income for the next 9 years, after which both our state pensions will be in full payment (assuming we make it that far and unless we defer one or both, but those are decisions for the future)

incus432

Delighted it worked for you!

When I did the numbers the FT annuity worked out near identical in cost, and a bit cheaper when you included the costs of the SIPP platform .