Can I buy a deffered annuity now?

DRS1

Marcon said:

An annuity isn't a personal pension - it's a contract of insurance.

As I recall the two alternatives when I set up my annuity last year were OMO and IVPP.  The PP stood for personal pension.

Marcon

DRS1 said:

Marcon said:

An annuity isn't a personal pension - it's a contract of insurance.

As I recall the two alternatives when I set up my annuity last year were OMO and IVPP.  The PP stood for personal pension.

Still doesn't make an annuity a personal pension. Completely different legislation. An IVPP is an immediate vesting personal pension. Your original pension funds were transferred into the IVPP and then immediately used to buy an annuity. So although it appeared to walk like a duck, quack like a duck etc...it wasn't actually a duck!

DRS1

Marcon said:

DRS1 said:

Marcon said:

An annuity isn't a personal pension - it's a contract of insurance.

As I recall the two alternatives when I set up my annuity last year were OMO and IVPP.  The PP stood for personal pension.

Still doesn't make an annuity a personal pension. Completely different legislation. An IVPP is an immediate vesting personal pension. Your original pension funds were transferred into the IVPP and then immediately used to buy an annuity. So although it appeared to walk like a duck, quack like a duck etc...it wasn't actually a duck!

Ah.  Thanks for correcting me.

Will that make it easier for the SIPP provider to get its head around what it is being asked to do?  Please invest in this annuity policy.  Or would they be using something other than the investment power?  

RogerPensionGuy

The reason I've got the MPAA involved in this thread is a few friends still working pumping their pensions are also interested in getting a deffered annuity allowing annuity rate capture now, TFLS now and trying to delay pension income and avoiding the MPAA as that will scupper their plan. 

It's interesting. 

Use a chunk of a DC/SIPP to get some TFLS now, lock in annuity rate today and slowly refill a SIPP with a nice adjustable little tap on it allowing nice flexibility and augmentation of cash flows and avoid the MPAA bite. 

To note the MPAA has been kicked about previously, it was 4K and now 10K, that was a 150% shift, like the LTA, who can guess what they will do to the MPAA in the future.

gm0

There of course mechanisms within some SIPP and similar (occupational schemes) that provide a fund choice which moves with annuity prices.  So value falls as annuity rates increase.  And value rises as annuity rates decrease.  Achieving a hedge. And locking in an achieved pension value for the assets.  Usually aimed at exactly this issue.  I am soon to buy and annuiity. I cannot afford a major correction having a lifelong impact.  What should I be invested in.

This is distinct from any cash fund offer in most cases.  As the purpose is different.  Though people do use cash funds / cash holdings for this purpose for short periods and bear some loss of coupon and inflation risks.

Whether the ACCURACY of said hedge and the other risks and costs attendant on holding these funds in the DC pension add up in theory and then in practice - will of course be subject to the usual hazards faced by the small scale investor in retail financial services.  Will it do what it says.  Will the government do something awful that cuts across.

af1963

Going back to the original question:  you can buy an annuity with annual payments in arrears, and that won't pay out until a year after buying it.  So probably next November at the earliest now.

"in arrears" annuities will have slightly higher rates than "in advance" because you're waiting longer to get the money. 

ukdw

af1963 said:

Going back to the original question:  you can buy an annuity with annual payments in arrears, and that won't pay out until a year after buying it.  So probably next November at the earliest now.

"in arrears" annuities will have slightly higher rates than "in advance" because you're waiting longer to get the money. 

An annual in-arrears annuity outside of a sipp could perhaps be combined with extra payments into a sipp of the net annuity amount (assuming there is enough free employment based income to enable it).

Would probably also work with a monthly annuity too.

OldScientist

gm0 said:

There of course mechanisms within some SIPP and similar (occupational schemes) that provide a fund choice which moves with annuity prices.  So value falls as annuity rates increase.  And value rises as annuity rates decrease.  Achieving a hedge. And locking in an achieved pension value for the assets.  Usually aimed at exactly this issue.  I am soon to buy and annuiity. I cannot afford a major correction having a lifelong impact.  What should I be invested in.

This is distinct from any cash fund offer in most cases.  As the purpose is different.  Though people do use cash funds / cash holdings for this purpose for short periods and bear some loss of coupon and inflation risks.

Whether the ACCURACY of said hedge and the other risks and costs attendant on holding these funds in the DC pension add up in theory and then in practice - will of course be subject to the usual hazards faced by the small scale investor in retail financial services.  Will it do what it says.  Will the government do something awful that cuts across.

The idea is to match the duration of the funds to the duration of the annuity (the latter being very roughly half the life expectancy at purchase although it varies a lot with yield) plus the delay to purchase. This is why lifestyle pensions designed for annuities (rather than drawdown) will often start to include cash and long-term bonds in the run up to retirement.

I have done some preliminary (i.e., unfinished) modelling using historical nominal yields (there's more data than for ILGs) and found that purchasing a single gilt with an initial duration set as above locks in the expected income to within about 5% most of the time, but in the worst historical cases was out by up to 15% (I was surprised that this simple approach worked so well). Although I've not yet modelled it, using two bonds funds (i.e., one short and one long or 'all stocks') of the appropriate type (i.e., nominal or inflation linked) would probably get to the same level of accuracy.