Annuity 5% increase per year or RPI

RogerPensionGuy

RogerPensionGuy said:

Just putting a bit of supplementary info on this thread, hopefully informative. 

I was lucky enough to get a face to face local appointment with an IFA today at very short notice. 

My annuity requests are pretty simple and a few points below that maybe helpful to some. 

I asked about RPI & 4% index only single life, no health or lifestyle issues thankfully with VP 100% or 30 years guarantee option. 

The offerings were very similar to moneyhelper and HL. 

I sampled a 400K single and 2 X 200K annuities of exactly the same data set, the 2 X 200K offering was better by just 0.15% and the IFA just said we would obviously go for the 2 X 200K offering, they didn't offer to make the 400K exactly the same. 

Reference the RPI offering, the best rates would allow payments to reduce if negative inflation occurs, I asked for a provider that doesn't ever reduce payments, the don't ever reduce payment took 2% off the offering unfortunately. 

The 200K X 2 offering is fine, but now trying to decide if that zero floor collar is worth a 2% less offering. 

I'm sure the money people have worked it all out and that's why they apply that 2% reduction approximately. 

The IFA did show me a level annuity with no VP or guarantees for reference information, think it produced a 40% higher offering, however I'm pretty fixed on RPI or possibly 4% in my head currently. 

So now my head is spinning picking more protections, zero collar to lock in future protections, balance and potential inheritance for children, however I'm not too fussed about any inheritance spill from this annuity vehicle. 

Just like always, any views, information or comments welcome. 

PS. IFA stated once deal is locked in, it just starts paying out from the day all total paperworks are fully completed, so if it took 21 days, it starts paying in 3 weeks, if it takes 42 days, it starts paying in 6 weeks time. I was surprised payments schedule value could not just pick say a date in the future like the 20th November and as long as all finds received by insurance company by the late date, the deal is the deal and I get payments as agreed even if the 1st month or two is delayed a bit. 

Just another slight update that maybe helpful. 

I played on moneyhelper for a few hours and it essentially gave me exactly(99.99%) figures of what the IFA gave me as per above post. 

I then used RPI, 4% and 30 years guarantee and tried VP @ 100% 75% & 50% using 100K, 200K, 300K, 400K & 500K.

It generated lots of data to view & consider. 

The VP 75% poked out looking the nicest from a balanced view to me. 

Also the payout increase/rise wasn't linear across the 100K, 200K, 300K, 400K & 500K inputs. I found out using a 100K & 400K result beat the 500K and also using a 200K & 300K beat the 500K on a different data set. 

The difference between them wasn't too horrible, but by using 2 products it could achieve another £10 or £15 per month more than just picking a 500K product, not a hill of beans, but tastes a bit nicer. On one data set I tried 250K & 250K and that actually produced the biggest advantage. 

A bit labouous I know, but another £150 PA @ RPI or 4% is a nice touch and espically on the 30 year guarantee product. 

I also did a bit of digging on the products that never reduce payments when negative inflation/deflation occurs from a personal value point of view, my current feeling is the zero collar/can't reduce payments products feel like poor value for me. 

OldScientist

RogerPensionGuy said:

RogerPensionGuy said:

Just putting a bit of supplementary info on this thread, hopefully informative. 

I was lucky enough to get a face to face local appointment with an IFA today at very short notice. 

My annuity requests are pretty simple and a few points below that maybe helpful to some. 

I asked about RPI & 4% index only single life, no health or lifestyle issues thankfully with VP 100% or 30 years guarantee option. 

The offerings were very similar to moneyhelper and HL. 

I sampled a 400K single and 2 X 200K annuities of exactly the same data set, the 2 X 200K offering was better by just 0.15% and the IFA just said we would obviously go for the 2 X 200K offering, they didn't offer to make the 400K exactly the same. 

Reference the RPI offering, the best rates would allow payments to reduce if negative inflation occurs, I asked for a provider that doesn't ever reduce payments, the don't ever reduce payment took 2% off the offering unfortunately. 

The 200K X 2 offering is fine, but now trying to decide if that zero floor collar is worth a 2% less offering. 

I'm sure the money people have worked it all out and that's why they apply that 2% reduction approximately. 

The IFA did show me a level annuity with no VP or guarantees for reference information, think it produced a 40% higher offering, however I'm pretty fixed on RPI or possibly 4% in my head currently. 

So now my head is spinning picking more protections, zero collar to lock in future protections, balance and potential inheritance for children, however I'm not too fussed about any inheritance spill from this annuity vehicle. 

Just like always, any views, information or comments welcome. 

PS. IFA stated once deal is locked in, it just starts paying out from the day all total paperworks are fully completed, so if it took 21 days, it starts paying in 3 weeks, if it takes 42 days, it starts paying in 6 weeks time. I was surprised payments schedule value could not just pick say a date in the future like the 20th November and as long as all finds received by insurance company by the late date, the deal is the deal and I get payments as agreed even if the 1st month or two is delayed a bit. 

Just another slight update that maybe helpful. 

I played on moneyhelper for a few hours and it essentially gave me exactly(99.99%) figures of what the IFA gave me as per above post. 

I then used RPI, 4% and 30 years guarantee and tried VP @ 100% 75% & 50% using 100K, 200K, 300K, 400K & 500K.

It generated lots of data to view & consider. 

The VP 75% poked out looking the nicest from a balanced view to me. 

Also the payout increase/rise wasn't linear across the 100K, 200K, 300K, 400K & 500K inputs. I found out using a 100K & 400K result beat the 500K and also using a 200K & 300K beat the 500K on a different data set. 

The difference between them wasn't too horrible, but by using 2 products it could achieve another £10 or £15 per month more than just picking a 500K product, not a hill of beans, but tastes a bit nicer. On one data set I tried 250K & 250K and that actually produced the biggest advantage. 

A bit labouous I know, but another £150 PA @ RPI or 4% is a nice touch and espically on the 30 year guarantee product. 

I also did a bit of digging on the products that never reduce payments when negative inflation/deflation occurs from a personal value point of view, my current feeling is the zero collar/can't reduce payments products feel like poor value for me. 

Interesting that the moneyhelper and IFA routes were not too different (although my understanding is that with health issues the IFA route may be better) and that different combinations of annuity premium result in different income (are the different combinations with different companies?).

In the event of deflation, the zero collar (or floor as it is sometimes called) would actually increase the subsequent real value of your income which is why the initial payout will be less. IIRC, there were a slew of articles warning about the effect of deflation on inflation protected annuity income the last time there was the possibility of annual RPI going negative (2008/09, e.g., see https://www.moneymarketing.co.uk/news/deflation-hits-annuities/ ). As an aside, it is worth noting that the nominal income from inflation linked gilt ladders will fall during periods of deflation.

RogerPensionGuy

I've just been reviewing this thread and finally feel happy about using a fixed % LPI or RPI, possibly use two annuities, I'll decide before I pull the lever.

I was also in this equation tweeking Value Protection between 100% 75% and 50%. I have ruled out any years protected by the as they just chop the initial % payout.

I don't need to leave any legacy from an annuity, but obviously a balanced VP could be a nice touch to my children if I expiry earlier than guessed. 

I'll keep playing on the 50% 75% and 100% VPs and the 3% 4% & RPI/LPIs and see what feels good in my head.

Also deciding to use how much % of my SIPP, my current feelings are using between 70% to 90% of SIPP value, I have a sensible DV, so I can be flexible, I wish I had a government golden plated DB instead of all this smoke and mirrors and possibly changes that may come the next few decades, I know DBs can be affected also, but I feel DC SIPPs are more exposed to negative changes.

I'll put my thinking cap on this weekend. 

michaels

Can I ask why you are not worried about the impact of an inflation surge like the one we saw recently?

RogerPensionGuy

michaels said:

Can I ask why you are not worried about the impact of an inflation surge like the one we saw recently?

Good point & question. 

I'm not overly bothered about inflation in my personal situation due my personal dynamics.

But, if an annuity was providing more than maybe 35/45% of income, inflation protection would be very uppermost in my head. 

There's a post in this thread I think saying 5% fixed works well historically and another poster mentioned sequencing risk and still okay if person can augment cash inbound if sequencing hits hard in the early zone. 

Fixed % LPI or RPI all muddles in to a persons risk/reward appetite and emotions, I don't much like negative emotions and prefer stability than risk and I'll select annuity index and protection as I feel appropriate when I tick the boxes.