Annuities - why all the hate?

snowlaser

So I am getting ducks in a row with a view to retiring somewhere in 10-15 years time (was planning 15 but now thinking my job might only last more like 10, which would put me in my very late 50s).

I have a reasonably sizeable DC fund and obviously 10 more years to pay in too.

My current thinking is to use some of it (not sure how much ... 50%?) to buy an inflation-linked annuity with 10 year guarantee that would see me safe for an income no matter how long I live, with the remaining 50% (or whatever) put into drawdown to be spent much faster, noting that most people are more active and spend more in the first part of their retirement (60-75) than the latter part (75-90/death).

However, when I have floated this on any internet forums I get howls of derision that handing over money to an annuity provider is a bad idea - something I could understand when interest rates were 0.1% but not now they are back to more normal levels (of course, in 10 years they could be different to today!)

I think my plan is logical ... I don't want to be managing assets when I'm 80-90 but I will want an income.  I do not trust that the State Pension will exist in 40 years' time for people like me who have lots of their own savings, so the idea of putting it all in drawdown and being reliant on the State as a backup does not seem safe to me.

Thoughts?

Also - does anyone know if DC pension schemes do let you use your money 50:50 annuity/drawdown like this?  I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

Brie

I had thought that I would move my DC ££ into a SIPP but have realised that I don't really want to deal with that long term.  So now I'm looking at annuities.  As I understand it I can take a tax free lump sum and then put the rest into an annuity.  So that may not be 50/50 but is half way there.  More may be possible.  

westv

What internet forums have you been posting to? You won't get any "howls of derision" from this or any other reputable personal finance forum.

snowlaser

westv said:

What internet forums have you been posting to? You won't get any "howls of derision" from this or any other reputable personal finance forum.

I don't know if I'm even allowed to say - but no, not here, which is why I am now posting here.  Thoughts on the matter most welcome.

Cobbler_tone

snowlaser said:

However, when I have floated this on any internet forums I get howls of derision that handing over money to an annuity provider is a bad idea 

I've never got that sense from this forum TBH.

If you apply that to DB pensions (a strong, guaranteed annuity), look for the responses when anyone suggests doing the reverse, i.e. selling it off for cash.
Whilst a DC pot may not buy the full equivalent of a good DB pension, I would say that the board is 'pro annuity' in general.
I do think human nature makes it more challenging to hand over £500k for a £x a year, not knowing what you are going to get back...but that is the price of security. The same reason that some people's eyes light up at a CETV. 

cloud_dog

snowlaser said:

westv said:

What internet forums have you been posting to? You won't get any "howls of derision" from this or any other reputable personal finance forum.

I don't know if I'm even allowed to say - but no, not here, which is why I am now posting here.  Thoughts on the matter most welcome.

Is it over on Reddit by any chance?

Triumph13

On your specific query, yes you can buy an annuity with whatever proportion of your pot you want.  If you wanted to use 50% what you would actually do is crystallise two third of it, taking a quarter of that (ie 1/6 of the total pot) as a tax free lump sum and buying the annuity with the other three quarters.  

At current prices you need a good reason not to buy an annuity.

snowlaser

Please can people stop just talking about what different internet forums say about things, and give me their thoughts on the questions I asked?

MeteredOut

snowlaser said:

Please can people stop just talking about what different internet forums say about things, and give me their thoughts on the questions I asked?

But you said "why all the hate" with annuities, and that is not something those that frequent this board will recognise from this board.

To the wider question, without understanding your complete finances, no-one can guide you on whether an annuity is good for you, but few would argue against it being a good tool to consider as part of an overall retirement plan where you want a guaranteed income.

Alternatives suggestions in the past have been gilt ladders.

Cobbler_tone

If you read the answers you have them.
It’s currently a good idea. In 15 years time it might not be. Triumph has also added detail. Financial advice at the time may also be good advice.

chuffinnora

@snowlaser
Agree with the others I don't think annuities are disliked in general by the posters on this forum. In fact the opposite in the current climate with record high rates. It very much depends on your circumstances.

Having said that my plan is pretty much identical to yours. I'm going to use 50% of my DC fund to buy a fixed term annuity, not a life one. That is once I decide to use the DC funds. Part of my DC is crystallised from taking a TFLS, and the pension company allow me to take out any of that for an annuity.

In the meantime when I retire next year I'll live off my small DB income and savings/investments for a few years and remain a none taxpayer. This will make the most of our savings interest returns and allow the DC to keep growing.

We've done the spreadsheet numbers on the basis we may or may not get the full SP. If we do that's a bonus.

I've increased my pension contributions for now to 50%+8% employer. Our income is still fine so proves we don't need a great deal more for day-to-day living, its just the additional expense of travelling, changing cars or home projects that means we dip into the funds.