Fixed term Annuity v Gilt Ladder

rudebh0y

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

NoMore

Any inflation proofing in either/both the annuity or the gilt ladder (via IL gilts)?

If they aren't both based on the same inflation linking then your not comparing like for like.

rudebh0y

No inflation proofing for either options. 42k a year every year.

SVaz

Out of curiosity, what interest rate have you used in the gilt calculator for parking the coupon cash? 

I’ve looked at creating a gilt ladder but with today’s interest rate cut then gilts will rise in price so looks like I’ll have to do it again.
I only need £12k for 4 years so I’m torn between Gilts or keeping the cash in the money market fund it’s in now. 

daveshep26

rudebh0y said:

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

No-one else has seen the same data as you have, but can you clarify if the residual sums (144k OR 170k) are both in 2025 money terms - or both 2030? (- or otherwise)?  That would be helpful to know,

MK62

rudebh0y said:

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

Over 5 years that's 3.38%pa.........you could buy a 5yr gilt today (T30) and get a YTM of 4.16%.........and that's pretty much guaranteed (well as far as can be). True, having the £144k in equities or partly in equities means taking some risk......there's a decent chance of making more, but obviously no guarantees.....

The gilt ladder tool you used suggests a gilt returning £170k in 5 yrs time (T30) would cost c.£138k today......so investing the whole £144k, would return c£177k in 5 yrs time.

PS - for clarity I assumed 3% interest on the coupons........

incus432

rudebh0y said:

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

Moneyhelper (the government website) have a very good fixed term annuity rate estimator with multiple options for escalation, survivor benefits, guarantee periods in case you die etc, (EDIT - only has these for lifetime annuity but you can get them] and it gives you the top insurers for each query,   https://comparison.moneyhelper.org.uk/en/tools/annuities.   No need to register .  You can usually get a better rate than it quotes by going through an execution only IFA or maybe a broker like Retirement Line but the figs are a good indicator.

One thing I'm not sure of is whether the lump sum you get back is still in the SIPP wrapper.

When I did the conparison for my OH in November the FT annnuity (no end lump sum) and gilt ladder were very close in cost with the annuity edging it because the SIPP could be closed so no fees.

leosayer

You already have guaranteed income that you could take now by starting your DB early, albeit at a reduced rate. 

This would allow more time for more of your sipp savings to grow. 

Have you considered that?

michaels

rudebh0y said:

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

Inflation is on the up again (BOE say 3.7% but we all know what really happens once it starts rising) - why would you possibly want to run inflation risk?

rudebh0y

SVaz said:

Out of curiosity, what interest rate have you used in the gilt calculator for parking the coupon cash? 

I’ve looked at creating a gilt ladder but with today’s interest rate cut then gilts will rise in price so looks like I’ll have to do it again.
I only need £12k for 4 years so I’m torn between Gilts or keeping the cash in the money market fund it’s in now. 

It was set to default which was 0%.  

rudebh0y

daveshep26 said:

rudebh0y said:

I am looking at ways to use money in my SIPP to bridge a five year gap before my DB pension kicks in. I need 42k a year income to give me 3k a month income.  I have 330k in my SIPP.

I have read people suggesting gilt ladders are way to go.

Legal and General fixed term annuity ladder gives me 42k a year for 5 years and on maturity I get 170k lump sum back for the full 330k.

A 5 year gilt ladder using https://lategenxer.streamlit.app/Gilt_Ladder website show a cost of 186k for 42k a year flow. So I would have 144k left in SIPP   

So my 144k left  in my SIPP after buying gilts would have to make  over 26k over the five years to make it the best way to go.  
   
Have I got this right or am I missing something.

 Also it may be possible to get better annuity rate elsewhere just used L&G as they gave a handy online calculator .

No-one else has seen the same data as you have, but can you clarify if the residual sums (144k OR 170k) are both in 2025 money terms - or both 2030? (- or otherwise)?  That would be helpful to know,

What do you mean no one has same data?  These are results I got from the two websites.  I get 170k back from annuity in 5years or the gilt ladder would cost 186k to start up ?  I do admit this is all new to me so I could be mistaken on what results mean.