RPI - linked annuity

zagfles

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Cobbler_tone

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

OldScientist

For completeness, here are plots of cumulative real income for the two example cases (blue line is RPI and black line is level)



Not surprisingly, in the high inflation case, the RPI annuity 'wins' (after about 11 years) and in the low inflation case, the level annuity wins.

Clearly there are differences of opinion in whether this is important (personally, I am only interested in instantaneous income not the sum total of previous income, although I do actually track that but only for portfolio withdrawals). Since it is impossible to predict whether inflation will be more like 1970 or more like 1990, then, IMO, the key question is what are the consequences of getting the choice wrong. For example,

In 1970, a retiree choosing a level annuity would have found its purchasing power much reduced after only a few years (from £8k to £2.5k after a decade). If this was a significant proportion of their spending, then they would have had a much reduced lifestyle for much of their retirement. If this was 'icing on the cake' income then the consequences would have been less (fewer holidays, less for hobbies, etc.).

In 1990, the consequences of a retiree choosing an RPI annuity that gave them enough income for their needs would have been that they would have had less income that the equivalent retiree who chose the level annuity, but still enough. 

zagfles

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

People who are working tend to get payrises which keep up with or exceed inflation. People with mortgages don't see their repayments rise with inflation, so the mortgage becomes cheaper in real terms over the years. Inflation is worse for people without mortgages. 

It's tough for kids starting out these days if in low paid jobs, but if they get a decent degree and job things are affordable, even housing, and inflation doesn't affect mortgage interest payments (interest rates obviously do but they go both up and down). My kids a few years out of uni both have jobs paying over £60k, both have bought a house and new cars, and have easily enough to live on with good career prospects which are likely to see their pay rise more than inflation while their mortgages stay much the same in nominal terms. 

OldScientist

For those interested in analytical work on the effect of inflation on different groups of people, then a (rather old, but largely still relevant) report can be found at https://ifs.org.uk/sites/default/files/output_url_files/comm106.pdf

There's a wealth ('rabbit hole') of inflation statistics collected by the ONS that anyone can dig in to if interested.

Cobbler_tone

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:1

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

My kids a few years out of uni both have jobs paying over £60k, both have bought a house and new cars, and have easily enough to live on with good career prospects which are likely to see their pay rise more than inflation while their mortgages stay much the same in nominal terms. 

Fair play to them and well done for raising some smart cookies. That isn't the typical outcome unfortunately for many graduates these days. Hence why uni's are offloading staff at a rate of knots, student numbers are through the floor and the USS thread is super busy!
Mine are both at uni and I kinda wish they had chosen a different route but I am sure they will find their respective paths. At the same time, I wish I'd gone to uni and certainly wouldn't have had the fees! 

westv

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

People who are working tend to get payrises which keep up with or exceed inflation. 

I would dispute that.

Cobbler_tone

westv said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

People who are working tend to get payrises which keep up with or exceed inflation. 

I would dispute that.

Are you a resident doctor? 

I checked mine over my 31 years. I think I have beaten inflation (just) with one promotion but mainly lateral moves within the same organisation.

westv

Cobbler_tone said:

westv said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

zagfles said:

Cobbler_tone said:

Not forgetting what drives RPI, much of which won't impact as many people in retirement. Food and utility bills will but mortgage/rent costs won't for everyone. Not forgetting that many will have oodles of savings which will attract higher interest rates during high inflation. You can almost high the collective groan when interest rates get dropped on other areas of this forum!

If you are on the breadline it is clearly more important.

Stuff like food, domestic fuel, water, council tax etc tend to rise faster than general inflation. Just check how much water has risen this year. Look at how much you were paying in council tax, gas, electric, water etc 20 years ago. 

For most of the last couple of decades inflation has been higher than interest rates. 

Depends where you want to put your line in the sand. e.g. water is cheaper than it was in 2010 with inflation applied. The Office of National Statistics' (ONS) Consumer Price Index (CPI) shows that between 1988 and 2005, the cost of food generally rose below the rate of inflation. In 2006, this changed and the cost of food rose above the rate of inflation, before dropping in 2013-14. Since 2016, food prices were on the rise again but at a lower rate than inflation (food prices went up 4.3%, whereas all inflation was 5.2%). Then there was Covid.

From my experience and from the lived experience around me, things seems to pinch in certain areas but ease off in others. e.g. it is £25 cheaper to fill my car up from the peak but that no doubt goes somewhere else.

I appreciate it is a generalisation but many pensioners (the ones who don't really need the WFA) will absorb any rises better than most. You will hear them moaning about interest rates dropping more than the price of their council tax.

The illusion that inflation doesn't affect pensioners pretty much the same as everyone else is frankly delusional. There'll be minor differences but the trend is similar for everyone. There's a personal inflation calculator here, have a play and see if you can convince yourself that inflation isn't as much an issue for pensioners as everyone else. 

How is inflation affecting your household costs? - Office for National Statistics

I’m sure it impacts some. My parents are very working class with a simple life. I know for a fact my mum hasn’t spent a penny of her state pension in 25 years (she told me) and worked full time for her last 7 years and hasn’t spent any of that either. Very old school and my dad gives her housekeeping! Their income is modest but they must spend very little to run their little bungalow and shopping. They certainly don’t need the WFA. They won’t be unique.

Inflation impacts everyone, no matter how "simple" their life is. You could live on £5 a week in 1970. You'd probably starve on that by 1980. 

Ah I see. I didn’t know you were trying to state an obvious point. Fortunately wage increases, savings interest, investments, the triple lock and discontinued six pence means that £5 a week is worth a lot more. On the flip side I just converted what my parents paid for their house. It must be worth £350k and it was the equivalent of £30k in today’s money. Then there were those who could buy council houses for peanuts. Even my first house was £40k in the early 90’s and would be over £200k today. It is easy to see how renters can struggle and the past couple of generations have been lucky. It’s the cost of housing which has driven the biggest challenges.
It is interesting to look at past comparisons of pricing. I bought a brand new car (living at home) at 18, which would have been £18k today. I can’t see most kids managing that these days. I wasn’t earning a fortune and I wouldn’t have even known what uni was!

People who are working tend to get payrises which keep up with or exceed inflation. 

I would dispute that.

Are you a resident doctor? 

I checked mine over my 31 years. I think I have beaten inflation (just) with one promotion but mainly lateral moves within the same organisation.

🤣

That is it though. Often inflation or above rises can only be achieved by moving roles or companies.

Mr_Benn

Thank you all for some interesting posts.  Its certainly given me some other things to think about.  Having got 'excited' by the much higher figures for a Level Annuity, compared to the first got quotes I got which were for an RPI Annuity,  Im now having to revisit them.  It might be that I end up with 1x RPI Annuity , to help achieve more of the figure I worked out we could need per month (including bills and playtimes ! ).and with the money I have left over choose between Drawdown or have a Level  Annuity.