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 DB 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. 

RogerPensionGuy

OldScientist said:

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.

Just another minor update. 

OldScientist asked if when I was offered 2 different annuities of say 200 & 300K to achieve a better gross output than a 500K single annuity, was it different insurance providers?

Answer is I don't recall, all I remember is Scottish Widows normally wins 80% of the time and think JUST the other 20% maybe another company won one or two quotes.

The IFA I met in person last week said they would need to check which products included a "zero floor coller" and didn't appear much interested in the zero floor coller matter.

And just for more fun, that IFA did advise a flexi access drawndown under their umbrella did look like best option in their opinions, I explained my personal view I want to buy an annuity income, this IFA will email me this week with a plan best for me, but advised if their outfit feels an annuity isn't correct for me, they won't do one for me.

So as a precaution I had a long chat to a friend's long standing IFA this morning as they are very friendly and he was happy to spare some time for me, he agreed if an IFA feels an annuity isn't correct for me, the IFA can refuse the business or an IFA may get me to sign a document to cover this situation, but more likely, they just won't do it. 

I did a quick overview of my status and friend's IFA tended to agree an annuity probably isn't my best overall long-term option due my cash, Gilts, ISAs, GIAs and premium bonds and a suitable FAD used and adjusted correctly would in all likelihood deliver a better more flexible outcome for me. 

Neither of these IFAs suggest me alone doing a FAD was a good plan, very much under their umbrellas was the pathway. 

So after spending much much time planning to get an annuity, it appears not so simple.

I'll wait to see what that 1st IFA comes back with.

I won't use friend's IFA as I'm personally very underwhelmed at their performance my friend has seen the last 10 years, to boot this IFA said they think all annuities have zero floor coller.

My SIPP provider is offering and will do an annuity, but it was 5 or 7% below top offerings, so this not an option.

So I'll do a bit more thinking. 

It half reminds me of when I looked at doing a DB CETV transfer about 6 or 8 years back, IFA was happy I do a transfer under his umbrella and would indeed provide paperwork to allow a DB transfer out, but if not under his/their umbrella, his paperwork would of suggested doing a transfer out was inappropriate so obviously my DB would not allow me to just port it out at that time. Guess I could of just paid an IFA to produce paperworks that could allow me to transfer DB out. It's funny looking back, had I of just done a txfr out and put in a low cost SIPP global units, the value today would of been more than double that CETV and at current annuity rates, it could of enabled a reaching for the moon annuity, however it could of turned out very different I guess. 

******'

So maybe after I was ready to pull a big annuity trigger I should completely review my situation, feelings and and appetite and see how I feel in a few days.

It's all good fun and learning I guess. 

Cheers Roger. 

Secret2ndAccount

What quote did you get from Hargreaves Lansdown?  I thought you said it was within 0.15% of the quote you can't get from an IFA. Retirement Line will give you the 0.15% difference

RogerPensionGuy

Secret2ndAccount said:

What quote did you get from Hargreaves Lansdown?  I thought you said it was within 0.15% of the quote you can't get from an IFA. Retirement Line will give you the 0.15% difference

Ref HL, I think it was lower than moneyhelper and can't remember the exact % but maybe I put the difference here an a thread. 

Moneyhelper was same or extreamly close to the IFA offerings. 

However the 1st  IFA did actually give the best quote on a plus 500 number I asked them, I will await to see if the best % offer I've seen gets confirmed as zero floor coller. 

I'm aware me getting a big old annuity maybe isn't a professional pathway, but I like the annuity idea and eeking out any tiny extra % on day is certainly upper most in my head. 

Are you saying Retirement Line will match any bonada fida annuity quotes(?) and as nothink is enhanced, I have been getting bog standard quotes, I hope this is the case.
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