Annuity vs Bond ladder

Justso65

I’ve been investigating a guaranteed income to bridge the gap from soon to be 60 until 65 when a DB pension kicks in.  I did research on annuities then compared this with a gilt ladder managed myself through my SIPP and the 5 year cost to get the income I want is very similar.  The best quoted annuity is L&G at around £196k for a 5 year annuity which is just about identical to what https://lategenxer.streamlit.app/Gilt_Ladder says it will cost me.  Are annuity providers simply using gilt ladders to give you a quote?  Based on these results and the fact that should I check out within 5 years an annuity is gone is a bond ladder better since the remainder can be passed on?  Are there any significant costs in building a gilt ladders other than the trading costs?

As always, thank you for any input.  Always appreciated.

JS. 

leosayer

My wife and I created a gilt ladder for my wife for a similar reason to yours. 

You didn't mention platform charges if you have any.

The main additional benefit of a gilt ladder is that you can sell them if your circumstances change.

SmokeysTravels

You need to check with the provider what the death benefits are for their fixed term annuity. The one my wife has returns the capital less any income payments should she die during the term. 

OldScientist

Justso65 said:

I’ve been investigating a guaranteed income to bridge the gap from soon to be 60 until 65 when a DB pension kicks in.  I did research on annuities then compared this with a gilt ladder managed myself through my SIPP and the 5 year cost to get the income I want is very similar.  The best quoted annuity is L&G at around £196k for a 5 year annuity which is just about identical to what https://lategenxer.streamlit.app/Gilt_Ladder says it will cost me.  Are annuity providers simply using gilt ladders to give you a quote?  Based on these results and the fact that should I check out within 5 years an annuity is gone is a bond ladder better since the remainder can be passed on?  Are there any significant costs in building a gilt ladders other than the trading costs?

As always, thank you for any input.  Always appreciated.

JS. 

For nominal annuities, then the annuity provider will use a mix of gilts and corporate debt (which tends to have a higher yield) and slice off a fee.

From a practical perspective, the income from a gilt ladder might be a bit more 'lumpy' than an annuity - the cash flow tab on the excellent lategenxer tool is useful reading (also note that the tool assumes withdrawal at the end of the required period - for a short ladder I would choose the 'monthly' withdrawal frequency although this seriously impacts the complexity).

Whether trading costs are significant will be platform dependent, for example, I note that the tool suggests the purchase of 19 gilts for a 5 year ladder with monthly withdrawals (which would cost £95 at iweb) or 5 gilts for a 5 year ladder with annual withdrawals (costing £25 at iweb).