Annuity Rates - 55 vs 65

pterri

Albermarle said:

exvirilis said:

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

However the student loan is not a loan/debt  in the usual sense. More of a graduate tax .
You should think very carefully before paying for it all. If the student does not go on to be a higher earner it will be a bad decision.
Martin Lewis' 6 need-to-knows about 'Plan 5' English student finance

Also you may find one of your teenagers does not even want to go to Uni . It is not for everybody.

A bit of a digression, but where I work (or used to!) we have been using the apprentice route for lots of ‘professional’ roles. Project managers especially, if that’s a thing you can see yourself wanting to do then you don’t need a degree. An apprenticeship route will get you into that world there or four years early and you you can still go to uni later if that’s your ambition, the sponsoring company may even pay toward it. We also take on engineering apprentices at the HNC/D level. Again, you get paid and fees paid for with the possible option of getting a degree later. You do need to make sure the organisation supports t(e scheme properly and does not use it as source of cheap access to clever youngsters. I’ve been very impressed with the apprentices we have 

DT2001

exvirilis said:

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

We have 4 children. First one did an apprenticeship, 2nd a degree in France (even post Brexit tuition fees quite a bit cheaper) bartering teaching English for accommodation, 3rd just leaving Uni to teach with £50k+ of debt and 4th hoping to train as a doctor. We were catching up on pension contributions when our 3rd was going through Uni so he took maximum loans. Prior to that we and a grandmother had invested for them all - the 3rd has more available in investments and cash than debt. It will enable him to get on the property ladder quicker and probably get a mortgage at a lower interest rate. I think it is a more flexible approach although might cost a little in the short term. With the youngest we’ll probably ensure we /he has enough cash/nr cash savings to clear the debt early if he pursues medicine. 

Whatever route you take it is great to be in a position to help your children early in life.

ukdw

I agree that the rates seem to increase as much with age as seems logical.

A male age 55 has on average about another 29 years. Whereas a male age 65 on average only has another 20 years - so I would have expected rates to be almost 50% more - whereas they seem to be closer to 15%.

i guess people who take annuities at age 55 must in general be less healthy - and therefore have lower life expectancies - otherwise they wouldn't offer such generous rates.

I certainly wouldn't buy a level full annuity at age 55 - but I wouldn't write off the idea of getting a partial (say 20% of fund) annuity now while overall rates are quite good- as it would offer a level of diversification, and would potentially allow you to ratchet up the risk level on your remaining investments a little.

Also it is possible to get annuities where the income remains in a pension wrapper to avoid pushing up tax rates while still working.

Personally I got my first partial annuity at age 58, which I partnered with a slight increase in the risk level on the remaining  funds in the drawdown account and haven't regretted it.

Aretnap

ukdw said:

A male age 55 has on average about another 29 years. Whereas a male age 65 on average only has another 20 years - so I would have expected rates to be almost 50% more - whereas they seem to be closer to 15%.

i guess people who take annuities at age 55 must in general be less healthy - and therefore have lower life expectancies - otherwise they wouldn't offer such generous rates.

It's more complicated than just dividing the annuity cost by life expectancy. When you pay (say) £100,000 for an annuity, you're not just giving the annuity provider £100,000. You're also giving them the interest it the investment returns that you could have earned by leaving it invested until you were 65 (and beyond). Which is quite a lot of extra money - someone calculated around an extra £50,000 further up the thread, depending on what assumptions you make about interest rates etc.

Obviously the annuity company doesn't get to keep that full £50K as they start paying your annuity straight away - but they get to keep a substantial chunk of it, which is what accounts for most of the 35% that seems to be missing at first glance.

OldScientist

ukdw said:

I agree that the rates seem to increase as much with age as seems logical.

A male age 55 has on average about another 29 years. Whereas a male age 65 on average only has another 20 years - so I would have expected rates to be almost 50% more - whereas they seem to be closer to 15%.

i guess people who take annuities at age 55 must in general be less healthy - and therefore have lower life expectancies - otherwise they wouldn't offer such generous rates.

I certainly wouldn't buy a level full annuity at age 55 - but I wouldn't write off the idea of getting a partial (say 20% of fund) annuity now while overall rates are quite good- as it would offer a level of diversification, and would potentially allow you to ratchet up the risk level on your remaining investments a little.

Also it is possible to get annuities where the income remains in a pension wrapper to avoid pushing up tax rates while still working.

Personally I got my first partial annuity at age 58, which I partnered with a slight increase in the risk level on the remaining  funds in the drawdown account and haven't regretted it.

As already suggested annuity pricing isn't quite that simple

Pfau has a good guide to pricing at https://retirementresearcher.com/income-annuity-101/ (and follow on articles - remember he is using US mortality rates)

There is a UK single life annuity calculator at https://lategenxer.streamlit.app/Annuity_Valuator

And a relatively simple approximation is to use the excel payment (PMT) function

e.g., pmt(5.3%,30,-100,0,1)

which gives an answer of about 6.4% (where 5.3% is the long term gilt yield, and 30 is the unisex life expectancy at 55yo) which is close enough to the calculator above (6.3%) and the single life quotes at https://www.hl.co.uk/retirement/annuities/best-buy-rates (6.6% - insurance companies use corporate bonds as well as gilts to get higher yields and, on the downside, also charge fees).

ukdw

Thanks @OldScientist & @Aretnap -   That annuity pricing guide in particular quite tricky to understand. - Shame the table starts at 65 - because it would be interesting to see what the figures were like for 55.

The annuity valuation has about £5k difference between the OP's original age 55 and 65 values - I guess that could relate to the 50% spouse part.

Looking at things purely from the Annuity providers point of view - I guess when they are comparing someone age55 and 65 they know both of them have a good chance of living quite a lot longer - so they need for both of them to keep quite a lot back for future investment growth to maintain the payments almost indefinitely - and that may well as mentioned be a bigger factor in their deciding on a risk free for them rate, than the actual likely number of years they will have to maintain that investment and payouts.

I guess it's only when you get a fair bit older (like over 75) that the amount they need to keep back becomes a smaller factor - which therefore allows them to offer better rates.

Doing HL quotes for my health profile at the following ages comes out with these percentages for single life/level - 55-7.4%,  65-8.9%, 70-10.1%, 75-12.3%, 80-17.8%

FIREDreamer

ukdw said:

Thanks @OldScientist & @Aretnap -   That annuity pricing guide in particular quite tricky to understand. - Shame the table starts at 65 - because it would be interesting to see what the figures were like for 55.

The annuity valuation has about £5k difference between the OP's original age 55 and 65 values - I guess that could relate to the 50% spouse part.

Looking at things purely from the Annuity providers point of view - I guess when they are comparing someone age55 and 65 they know both of them have a good chance of living quite a lot longer - so they need for both of them to keep quite a lot back for future investment growth to maintain the payments almost indefinitely - and that may well as mentioned be a bigger factor in their deciding on a risk free for them rate, than the actual likely number of years they will have to maintain that investment and payouts.

I guess it's only when you get a fair bit older (like over 75) that the amount they need to keep back becomes a smaller factor - which therefore allows them to offer better rates.

Doing HL quotes for my health profile at the following ages comes out with these percentages for single life/level - 55-7.4%,  65-8.9%, 70-10.1%, 75-12.3%, 80-17.8%

This site has tables starting at age 55 …

https://www.sharingpensions.co.uk/annuity_rates.htm

RogerPensionGuy

The link below maybe helpful to view for some people. 

It included lots of good info which I found nice & it was a bit lighthearted.

******

https://youtu.be/cPNbAE9gm_U?si=64DvrP8D5vjy6iwr

OldScientist

MetaPhysical said:

exvirilis said:

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

Maybe because there are so many "Mickey Mouse" degrees these days that have almost zero practical societal value and because there are so may people studying them that it is unsustainable for the wider society to fund all that frivolity.  Very interesting that it may be but why should society (aka "the taxpayer"), pay for someone's degree in medieval islamic ceramics, for example?

Very off topic (apologies to the OP): Interestingly, the UK tableware ceramics industry in the UK is worth about £400m (i.e., about the same as the UK fishing industry) and, presumably, has some need for graduates with vaguely related degrees (although, on a brief search, I cannot actually find a whole degree devoted to islamic ceramics - although York offers a single module as part of a History of Art degree).

As for numbers of students by degree (at all levels), the latest figures I can find (https://www.hesa.ac.uk/news/08-08-2024/sb269-higher-education-student-statistics/subjects) indicates that about 45% of students study science and engineering and 55% non-science subjects the latter of which includes business and management (20% of all students), Law (5%), Teaching (4%), and design, creative and performing arts (6%).

Cobbler_tone

MetaPhysical said:

exvirilis said:

Appreciate I don't have to, but having kids £50k in debt before they've even started life is dreadful so I'll do my utmost to sort that out.   

Really don't get how i was able to go to uni for free, and my local authority gave me £2k spending money per year in the 90s, but now kids have to take out loans at commercial rates of interest.  bonkers.

Maybe because there are so many "Mickey Mouse" degrees these days that have almost zero practical societal value and because there are so may people studying them that it is unsustainable for the wider society to fund all that frivolity.  Very interesting that it may be but why should society (aka "the taxpayer"), pay for someone's degree in medieval islamic ceramics, for example?

Although these numbers are rapidly declining....see the USS threads! The majority of these loans will still never be paid back in full. ML doesn't like referring to them as 'debt'. It is certainly the last thing anyone should pay off if they come into some money. If I was giving my kids £50k, I'd want it to go towards a property before they looked at clearing student loans.

The gradual growth of apprenticeships will continue and you certainly see business investing more time and resources in this area.