Rejigging my plan using an annuity

SouthCoastBoy

With all this talk of annuities I am considering revamping my plan and using an annuity as part of my plan, the caveat being I won't be buying an annuity for another 7 years so rates in my plan are based on  a similar ball park as they are now, obviously that is not guaranteed.

Me
Current situation (aged 60)
SIPP 1 - £567000
SIPP 2 - £358000
NPI pension - £22000 (payable at 65, plan is to transfer into SIPP 2)
Full State Pension
S&S/Cash ISA - £890,000 (ISAs are split between the 2 of us)

Wife (aged 58)
Full State Pension
DB1 - £10,500 (payable from 60 to 65 then goes down to £8800, capped at 5% increase)
DB2 - £5,000 (payable at 67, no cap) still working this will most probably be worth around £6000 at 60.

If I retire at 61 (early next year),I am now planning to take SIPP 2 into drawdown and over the next 6 years take £150,000 including 25% TFLS.

At 67 take £200k (in todays money) and buy an annuity linked to RPI (single life) hopefully around 12k a year.

This would then give us a joint income of around £50k per year from aged 70 for me (67 for wife), as we currently live off £2650 per mth I think that amount should suffice.

Any additional spends we would use the ISAs. 

In terms of going into drawdown with a SIPP and then buying annuity, are there any restrictions?

If one of us dies we then have the backup of SIPP 1 and ISAs. Reasonable plan?

El_Torro

Would the annuity be in your name? Would it be inflation linked? Would it pay out 100% to your wife if you die first? A £12k annual income sounds quite generous if it is only costing you £200k. 

It's normal to crystallise a pension pot before buying an annuity, so I don't see why being in drawdown would cause a problem. Happy to be corrected on this if I'm wrong. 

Your plan sounds sensible to me. In fact I think you'll be swimming in cash, especially since your ISAs are so large.

SouthCoastBoy

Thks for giving me your opinion on moving from drawdown to an annuity. Yes I am planning on a RPI linked annuity, in my name only (basically to nearly match my wife's DB income)

The H&L current annuity rates table has £5,387 for a 65 year old and £6,171 for 70 year old, so yes may be I am not being realistic, perhaps £10k instead of £12k

ali_bear

One thing you don't mention is whether you want to pass on some of some of your wealth to the next generation? 

SouthCoastBoy

ali_bear said:

One thing you don't mention is whether you want to pass on some of some of your wealth to the next generation? 

Yes, I would like to, hopefully the remainder of SIPP and/or ISAs plus house 

Albermarle

Would the annuity be in your name? Would it be inflation linked? Would it pay out 100% to your wife if you die first? A £12k annual income sounds quite generous if it is only costing you £200k. 

I do not think a spousal benefit with an annuity is that important here, as she will have more money that she knows what to do with anyway.
Especially if SCB's retirement plans get delayed again, to do OMY, just in case   

dunstonh

Yes I am planning on a RPI linked annuity, in my name only (basically to nearly match my wife's DB income)

Don't rule out including the spouse.  I know you are not looking at it now but an older/similar aged spouse may not make much difference to the annuity rate and if the health of the spouse qualifies for enhanced rates, you may find the annuity rate is better than single life.     So, when you do look at it in the future, get single life and joint life quotes to give you an informed choice.

leosayer

Why wait until age 67 to start an annuity? What is the difference in cost between buying one now and at 67?

How are you planning to mitigate the risk of annuity rates dropping significantly between now and age 67?

SouthCoastBoy

leosayer said:

Why wait until age 67 to start an annuity? What is the difference in cost between buying one now and at 67?

How are you planning to mitigate the risk of annuity rates dropping significantly between now and age 67?

I'm currently still working so no need for an annuity just yet. Once I stop work I could look at buying an annuity and see how that compares with buying one at 67. 

If rates go down I will most probably just use drawdown which was my initial plan.

DRS1

You could always think about putting £150k of SIPP2 into an index linked gilts fund in the hope that it will correlate to some degree with the price of an index linked annuity.

SouthCoastBoy

DRS1 said:

You could always think about putting £150k of SIPP2 into an index linked gilts fund in the hope that it will correlate to some degree with the price of an index linked annuity.

Thks for the suggestion, to date I have always avoided bonds as not sure I fully understand the nuances