Am I too young to start an Annuity?

Richmmm5645

I am thinking of using a portion of my SIPP (20%) to give me a base income. I am age 62 and i would be in profit if I live later than age 76.

I have spoken to an IFA who mentioned that I am a bit young for an Annuity! I have also seen something like this mentioned before on the net.

Without going deep into figures....is there a right age to get an annuity?

Rich

Brie

When I asked about annuities recently I was told that they aren't good value.  But that was because of the product rather than one's age.

As for being too young...the later you take it the higher the money you get will be per month because on an actuarial basis you will have less time to collect it.  

did the IFA suggest an alternative?  draw down perhaps?  

what are your other income possibilities?  any work pensions?  what's your state pension forecast say?  Or maybe you have assets you might sell??? (rental property etc)

Richmmm5645

Yes, Drawdown would be an option, i will be using the 80% left of my SIPP for drawdown. I dont have any alternate sources I could use either.

The only other way I have seen is a gilt ladder, which would be 23% cheaper over the 14Years it would take to get into proffit on the annuity, but with more complexity.

If I wait a few more years to start the annuity, sure I will get more money each month, but I may not live long enough to get into proffit.

Maybe I am fixated on the time to get into profit? However is there a more important figure to look at?

Rich

TheGreenFrog

I have just taken out an annuity using 20% of my SIPP and I am younger than the OP.  Age I think has very little do with it.  Annuity rates are relevant of course but they are considerably better now than they have been for a long time and who knows where they will go to.  Issues such as income requirements, both present and future, and diversification of risk are more relevant to the decision on whether or not to take out an annuity, and of course there are very different flavours of annuity (I went for RPI linked). 

Marcon

Richmmm5645 said:

Yes, Drawdown would be an option, i will be using the 80% left of my SIPP for drawdown. I dont have any alternate sources I could use either.

The only other way I have seen is a gilt ladder, which would be 23% cheaper over the 14Years it would take to get into proffit on the annuity, but with more complexity.

If I wait a few more years to start the annuity, sure I will get more money each month, but I may not live long enough to get into proffit.

Maybe I am fixated on the time to get into profit? However is there a more important figure to look at?

Rich

Probably, but you aren't alone in that fixation - and it's a perfectly reasonable thing to consider. Don't forget, though, that if you wait, your pension pot might have grown (although it could have dropped!); and you'll get a rate which reflects the fact you are older so the annuity will be payable for a shorter period, and that will impact on the annuity rate (but so too will other factors, especially market conditions/interest rates). In short, you are juggling unknowns.

Maybe look at something else: how much you need to meet your living costs now/in the immediate future and where those funds are coming from. Do you actually need to buy an annuity, or are you still in employment and earning enough to cover your living expenses (and hopefully contributing to your pension fund)?

DullGreyGuy

In principle annuity pricing is done in a neutral way, they won't punish you for talking it early or reward you for taking it late. The amount of money you'll receive will naturally change because the number of years you'll be paid will go up if you take it early but either way they'll still guesstimate you're going to die at the same age. 

Their calculations will include an annual admin fee so in theory you do get a little less for taking it earlier but it's a tiny amount compared to the annual payment. 

Marcon

DullGreyGuy said:

In principle annuity pricing is done in a neutral way, they won't punish you for talking it early or reward you for taking it late. The amount of money you'll receive will naturally change because the number of years you'll be paid will go up if you take it early but either way they'll still guesstimate you're going to die at the same age. 

Their calculations will include an annual admin fee so in theory you do get a little less for taking it earlier but it's a tiny amount compared to the annual payment. 

Pity OP didn't stick with their final salary scheme https://forums.moneysavingexpert.com/discussion/5685748/drawdown-providers#latest - they wouldn't now have this sort of issue to worry about!

TheGreenFrog

Marcon said: 

Pity OP didn't stick with their final salary scheme https://forums.moneysavingexpert.com/discussion/5685748/drawdown-providers#latest - they wouldn't now have this sort of issue to worry about!

He has probably done rather well from the trade though!

Richmmm5645

I am very happy with my desicion to take my final salary pension into a SIPP. It has allowed me to spend some money now, while i am fit enough to enjoy it.

dunstonh

Without going deep into figures....is there a right age to get an annuity?

While level annuities are at 15-year highs, index-linked annuities have not increased to the same degree as inflation risk, which is knocking prices.

At 62, you are a bit young to consider a level annuity unless you have a significant level of indexed income in retirement.   So, you are looking at index linked which may not be commercially attractive to you.

Effectively, whether you start at 62 or 72, statistically, you are likely to get a similar amount paid out over the term assuming the same life expectancy on a level annuity.     

But if you are looking at index-linked, then you need to make a judgement call or hedge your bet with fixed indexation.

westv

dunstonh said:

Without going deep into figures....is there a right age to get an annuity?

While level annuities are at 15-year highs, index-linked annuities have not increased to the same degree as inflation risk, which is knocking prices.

That does surprise me seeing as index linked rates look reasonably competitive compared to the UK SWR.