Should I take drawdown or Annuity

thegalfridref

I am 65 in July and am going on a three day week until my state pension kicks in in Nov 2026. I have a combined pension pot at the moment of £169000. I have lost £6000 in the last two weeks with the state of the current market. I know everyone is losing at the moment. 
I saw my financial advisor last week to organise drawdown from my pension, to top up my wage when I go on reduced hours. He showed a bit of concern that my money would slowly run out in when I stop earning. Roughly my money would run out in my mid 80s.
 We talked about me taking an annuity, we're he was getting me a 6.6% rate, which would give me £23000 tax free and a lifetime income of £9600. Also if anything happened to me in the first 10 years, 100% would go to my wife. After that it would be 66%.
I am tempted, as I am also worried that my pot won't last, especially with what is happening at the moment. This would also stop me worrying and give me peace of mind for the rest of my life.
I , along with my wife go back to see him next Friday.
Any advice would be grateful.
Thank you

Dazed_and_C0nfused

Is the £9,600 fixed for life or do you get an annual increase?

If no increase you need to be aware the effect inflation will have on the spending power of that £9,600.

Have you checked to make certain you are getting at least £221.20/week State Pension?

Any other pensions at all?  £169k at 65 isn't huge to be honest.

p00hsticks

What are your wife's pension provisions like ?

QrizB

thegalfridref said:

We talked about me taking an annuity, we're he was getting me a 6.6% rate, which would give me £23000 tax free and a lifetime income of £9600.

With a "normal" DC pension pot of £169k you'd expect to have ~£42k tax-free leaving ~£127k for an annuity.

Judging by the current HL best buy page:

https://www.hl.co.uk/retirement/annuities/best-buy-rates

It doesn't list your particular combination of survivor benefits and guarantee, but £127k would only buy a 67-year-old £9600pa as a level annuity. Choosing one that increases with RPI would knock about a third off.

At 4% inflation, a level annuity will lose half it's buying power every decade.

dunstonh

 I have a combined pension pot at the moment of £169000. I have lost £6000 in the last two weeks with the state of the current market.

Which is an irrelevant drop and not even worth taking about really.

I am tempted, as I am also worried that my pot won't last, especially with what is happening at the moment. 

What is happening at the moment that is concerning you?

This would also stop me worrying and give me peace of mind for the rest of my life.

That is what an annuity is all about.   It removes the risk of money running out to give you certainty.   It also removes the potential to have more but that is the judgement call to make.

With annuity rates at their highest in over 15 years, they are back in play for the time being.  

OldScientist

As others have said the inflation protection with the annuity is important.

https://www.williamburrows.com/calculators/annuity-tables/ have slightly more varieties than the HL tables.

For an annuity at 65yo (with 66% survivor benefits and 5 year guarantee - there will not be much difference between a 5 year and 10 year one at 65yo)

Level (i.e., no inflation protection) pays out 6.9% (i.e. close enough to your quote)
RPI (i.e., the amount will be increased with inflation) pays out 4.5%

Which of these will be 'best' is impossible to predict since it will depend on future inflation. If inflation is low then the level one will provide the highest real income, if inflation is high, particularly soon after retirement, then the RPI annuity will (in the long term) provide the highest real income. I note that if inflation is constant at the UK historical average (about 4.5%) it would take about 10 years for the RPI annuity to catch up with the level one (and that there is a 10% chance of living to 95 or so).

Assuming inflation adjusted drawdown, then a historically worst case rate over 30 years in the UK has provided an income of about 3.5% of the initial portfolio value (i.e., your pot would provide about £5900 in the first year, £5900 increased by inflation in the second year, etc.). There is no guarantee that future retirements would provide this amount, but they could also provide much more.

One approach is to consider what inflation adjusted income floor you need to cover essential expenditure in the long-term (i.e. SP + other income) and buy a sufficient amount of RPI annuity to cover that and then use the remaining pension pot to cover 'nice to have' expenditure and the period before the SP. For example, if you need a minimum of £14k per year in real terms, then about £12k will be provided by the SP and therefore £2k would be needed from an annuity (requiring a premium of about £45k at a rate of 4.5%). Obviously, your joint position needs to be considered including what happens if one of you dies (e.g., with 66% survivor benefits, the annuity income will reduce by one third and overall SP income by half).

westv

OldScientist said:

https://www.williamburrows.com/calculators/annuity-tables/ have slightly more varieties than the HL tables.

Just a pity some options just produce a blank page.

OldScientist

westv said:

OldScientist said:

https://www.williamburrows.com/calculators/annuity-tables/ have slightly more varieties than the HL tables.

Just a pity some options just produce a blank page.

True, although as far as I can tell only the 'no guarantee' when used with a joint life and a 5%pa escalation produce a blank page.

Since a 5-yr guarantee period makes very little difference to the payout rate, this is probably a small problem. IMV, it would be nice if they had data for longer guarantees - although,  https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities can be used for that (although requires a lot more info!).

I think the 5% fixed escalations are now dearer than an RPI annuity, so this may be the reason why they are not currently shown.

DRS1

OldScientist said:

westv said:

OldScientist said:

https://www.williamburrows.com/calculators/annuity-tables/ have slightly more varieties than the HL tables.

Just a pity some options just produce a blank page.

True, although as far as I can tell only the 'no guarantee' when used with a joint life and a 5%pa escalation produce a blank page.

Since a 5-yr guarantee period makes very little difference to the payout rate, this is probably a small problem. IMV, it would be nice if they had data for longer guarantees - although,  https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities can be used for that (although requires a lot more info!).

I think the 5% fixed escalations are now dearer than an RPI annuity, so this may be the reason why they are not currently shown.

When I got quotes last year 5% increases were about 10% dearer than RPI increases.

Albermarle

 I have a combined pension pot at the moment of £169000. I have lost £6000 in the last two weeks with the state of the current market. I know everyone is losing at the moment. 

As you will have had this pension pot for many years, you will be aware that its value going up and down is normal, and there is nothing particularly special about the recent modest drop. I do not know how your pension is invested, but if I look at a typical mediumrisk multi asset fund, then it will be down around 3% over the last 3 months, but up 6% over the last 12 months, and up 40% over the last 5 years. So in reality the recent drop has just given away a small % of the longer term gains.

I am tempted, as I am also worried that my pot won't last, especially with what is happening at the moment.
You can take any moment in time for the last 20 years, or the next 20 years and be worried what is happening.
The % annual withdrawal from the pot being too big, is what causes the most issues with pots running out.


 This would also stop me worrying and give me peace of mind for the rest of my life

That would be a perfectly sensible decision, just do not make it based on the back of worrying what is happening in the world right now.

DRS1

One other thing I had not realised about RPI linked annuities is that if RPI goes down then so does your annuity.  Not something to put you off because how often does that happen?  Once in the last 20 years I think.