Considering annuities

Brie

Again on the ongoing search for what to do for retirement income.....I am currently looking at the possibility of annuities.  But am a bit confused.
(previous - Ongoing search for a place for my pension — MoneySavingExpert Forum )

OK so the pot in question is currently about £136k which is up nicely from a year back.  It's a work pension, not a DB.  Also I already get the full SP and have a DB that's been paying out for a couple of years.  There's additional investment income I can draw on if/when required.  

So I've done a few online enquiries about annuities.  Aviva has come up with a basic quote of 25% tax free and the rest guaranteed for 20 years giving me about £7700 a year.  But another query has thrown up that I could get over £12k a year with no lump sum and no guarantee on the basis of it being a "single life, enhanced" policy.

Can anyone explain what that means?   And is it mostly taking the TFLS that gives the higher income??  AND if I didn't take a TFLS would my eventual monthly payments be partially tax free.

Like with so many things online it seems that it's a fishing exercise and I'm the fish - companies give you a bit on info and tease you into biting so they can reel you in.  I don't want to have to keep ringing companies up one after another to ask what they are talking about and being subjected to hard sell, or spending an hour in yet another phone meeting with someone who may or may not know what they are talking about.  

dunstonh

So I've done a few online enquiries about annuities.  Aviva has come up with a basic quote of 25% tax free and the rest guaranteed for 20 years giving me about £7700 a year.  But another query has thrown up that I could get over £12k a year with no lump sum and no guarantee on the basis of it being a "single life, enhanced" policy.

The quote engines for intermediaries can generate a best case enhanced quote.  Its basically there to show you how a severe medical case can benefit from medical disclosures.    It has no other value and rarely does anyone get close to the maximum.    

And is it mostly taking the TFLS that gives the higher income?? 

no.  That has no impact on the annuity rate.  

AND if I didn't take a TFLS would my eventual monthly payments be partially tax free.

In most annuities no. Although there are some options available to IFAs that can do this.

Like with so many things online it seems that it's a fishing exercise and I'm the fish - companies give you a bit on info and tease you into biting so they can reel you in.  I don't want to have to keep ringing companies up one after another to ask what they are talking about and being subjected to hard sell, or spending an hour in yet another phone meeting with someone who may or may not know what they are talking about.  

Use a local IFA with a decent fee and you will avoid all that.

DullGreyGuy

You mention a single life annuity but are also considering a guarantee period? Who are you hoping to leave the guarantee to if you dont survive the duration? 

Roughly speaking the 25% tax free would account for an uplift of 1/3 if you weren't to take it, though Aviva should be able to quote you for it to give you certainty rather than estimating, so is basically half the difference. Enhanced annuities can be uplifted by 30% for those with significant health issues but can be much less, L&G for example say an obese smoker but no actual health issues would get a 10% uplift on an enhanced annuity. 

Enhanced and guaranteed payment period arent mutually exclusive with some annuity insurers so if having payments for a fixed period even if you dont live that long could be added to an enhanced annuity (though they may have a shorter limit)

Brie

dunstonh said:

Use a local IFA with a decent fee and you will avoid all that.

DullGreyGuy said:

You mention a single life annuity but are also considering a guarantee period? Who are you hoping to leave the guarantee to if you dont survive the duration? 

Thanks both for your comments.

@dunstonh
I can't find an IFA that will talk to me.  There may be one available via my very recently ex employer that I haven't contacted yet but I swear as soon as I talk to an IFA they turn around and ignore me - obviously don't want my business for some reason.  Not enough ££ in my fund?  I talk funny??  Who knows???  The ex-employer one will be the 4th in 3 years

@DullGreyGuy
So does single life mean no guarantee period? 

I do have my spouse who is a couple of years younger but in decidedly worse health so whether he'd be around to enjoy it is debatable.  There's also the thought that I (or someone) should get a good value out of my pension pot.  £136k divided by £7k should be about 20 years and could go to someone else or the local cats home....

af1963

Sounds like Aviva's quote is for 7700 to be generated from 75% of your 136k fund, while the other one is for 12k based on using 100% of your fund for the annuity.  So if you used 75% of your fund for the latter, same as for Aviva, it would generate about 9k. 

The difference between that and Aviva's quote comes from the "enhanced" part of the description, which as dunstonh says, will be based on what you'd get if you had serious ill health. Not sure whether that's a "best-case" or "worst-case" scenario ...

DullGreyGuy

Brie said:

DullGreyGuy
So does single life mean no guarantee period? 

I do have my spouse who is a couple of years younger but in decidedly worse health so whether he'd be around to enjoy it is debatable.  There's also the thought that I (or someone) should get a good value out of my pension pot.  £136k divided by £7k should be about 20 years and could go to someone else or the local cats home....

They are independent terms... you can have a guarantee period on a single or joint life annuity and you can have both without a guarantee. 

For example you could have a joint life policy with a 50% spouse pension and 20 year guarantee so if you died after 10 years then your spouse (if they survive) would get 10 years at 100% your pension and then the rest of their life at 50%. If the spouse was to die first then the 10 years remaining guarantee goes to you beneficiaries and the 50% spouse component is "lost". 

Naturally the more features you have the less you personally get but it's ultimately all a roll of the dice. Have seen annuities where people bought guarantees and 100% 2nd life beneficiaries etc and at 105 they are still on the same flat rate pension as when they retired at 60. On the flip side seen those who do everything to maximise their own money from a large pot with indexation, no guarantee, no second life etc and be dead a year later. 

af1963 said:

The difference between that and Aviva's quote comes from the "enhanced" part of the description, which as dunstonh says, will be based on what you'd get if you had serious ill health. Not sure whether that's a "best-case" or "worst-case" scenario ...

It can be health and/or lifestyle factors (eg smoker, obesity) and doesnt have to be that "serious" but the enhancement does vary based on the seriousness. 

af1963

"Mutually exclusive" would mean you can have one or the other, or neither, but not both.  Pretty sure that's not what you mean, DGG ... 

"Single life" and "with guarantee" are independent choices. 

You can have either, or both, or neither, as you explained in the following sentence, but the "mutually exclusive" phrase could confuse the issue.

DullGreyGuy

af1963 said:

"Mutually exclusive" would mean you can have one or the other, or neither, but not both.  Pretty sure that's not what you mean, DGG ... 

I should be doing thing exclusively, clearly can't multi-task.... yes intended to say they are independent 

Cressida100

Following this thread with interest. I have just started to look at my L&G dc work pension which I plan on taking when I retire (70) in a couple of years. I'm not sure whether to just drawdown or take a mixture of lump sum and annuity.

I spoke to L&G who were quite helpful and gave me the link to the annuities site for the best deal if I go that route. The problem I have is that when I'm adding health issues one of my medications is biologics by infusion (6 monthly) and there's no way to add that info. I do have quite a few health issues and would like to get an accurate quote.

Has anyone had this issue and know how to solve it? Any advice appreciated. For info I have two DB pension and SP already in payment. 

DullGreyGuy

Cressida100 said:

The problem I have is that when I'm adding health issues one of my medications is biologics by infusion (6 monthly) and there's no way to add that info. I do have quite a few health issues and would like to get an accurate quote.

Has anyone had this issue and know how to solve it? Any advice appreciated. For info I have two DB pension and SP already in payment. 

You would normally add the condition not the treatment, on adding the condition there may be further questions to ascertain the severity, for example with high blood pressure they enquire about how many meds you take, how long, when they were last changed etc. 


Biologics is simply a medicine whose source is biological in nature, rather than "made in a lab". If you were asked for the details of your medicine "biologic" wouldnt be a complete or accurate answer. For example with arthritis you could be talking biologic or non-biologic medicines, if its biologic it could be TNF blocker, B-Cell Inhibitor or Selective Co-stimulation Modulators (there are probably several more these days, its been a long time since I did pharmacology), its this that you would state not just that its sourced from a biological source

Mr_Benn

Just a heads up Brie, if you just need some impartial explanation of Terms or what something means, you can contact moneyhelper.org.  Theyre a government run team. They cant offer advice as such, but are good at just answering the question you ask without trying to sell you something. You can even arrange a 1 hour session with them. 

https://www.moneyhelper.org.uk/