Annuity Interview question.

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Thanks everybody for the replies.

Addressing some of the points in no particular order:

I do have a GAR, with the GAR the projected rate means I will break even (after tax, not accounting for interest on the diminishing pot) in 15.6 years, I could shorten that by taking the 25% tax free lump sum and sticking it into a cash ISA, but I am gambling on living longer and being a bigger winner overall. (And if I lose I won't exactly be in a position to worry about it)

I much prefer to have money coming in than to watch my savings diminish and try and eke them out for an unknown length of time, so I want to use the whole lot to buy an annuity.

I don't have any dependants to worry about.

I have absolutely no intention of trying to falsify anything that can be easily verified by my Doctor.  (Hopefully by looking at my records rather than a medical, I really don't want to go near any Health Centre/Doctor's until peak Flu/Covid season is passed, but I'll cross that particular bridge as & when)

However, the link leosayer posted and your replies confirm that I do need to be careful I don't paint a rosier picture than necessary, by doing things like weighing myself naked with an empty bladder, not mentioning all my relatives who suffered from heart disease etc. (I'll make a list now, and dig out my parents death certificates ready for the interview, rather than winging it)

I genuinely didn't know that providers offer enhancement to people with a short life expectancy, I was under the impression that they simply divided your pot by (80-your age) and that was the annual return, and they make their money from what they can get from investing your diminishing pot and any remaining pots from people who don't make 80.

I wrote cynicism as I thought they would only use an increased probability of passing 80 to reduce the income, rather than a decreased possibility to enhance it!

Now I'd better start doing my homework, and searching for those death certificates for exact cause of death.

QrizB

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I do have a GAR, with the GAR the projected rate means I will break even (after tax, not accounting for interest on the diminishing pot) in 15.6 years

A 6.4% GAR? Is that flat, or indexed? Any spousal benefits?

If flat, it's probably worse than the open-market option. If RPI indexed, it's worth having.

https://www.hl.co.uk/retirement/annuities/best-buy-rates

hotncold47

I'm also getting quotes at the moment and have been using Moneyhelper and Hargreaves Landsdown to get an idea what ballpark I'm in. You can enter any medical issues if any to see if your quote will be enhanced but it won't be as detailed as speaking to an IFA/Broker/Provider.

I have no idea your options when a GAR is involved I'm afraid.

The "Making Money Podcast" Guaranteed Income For Life-Annuities Explained featuring someone from Retirement Line Brokers 6 months ago I found quite helpful.

If I read it right your are not taking your 25% TFLS? So that means you will be paying tax via your annuity on your TFLS? Hopefully someone more switched on than me will say if this is good or bad.

DRS1

GARs can work in different ways but when I got a quote from SW they said that if you go for an enhanced annuity you lose the GAR.  So I got comparisons of the standard annuity including GAR (which only applied to part of the pension) versus enhanced annuity.  The enhanced annuity was better but that is a rarity according to SW (and probably because of the low percentage of the overall pension which attracted the GAR).  Their GAR was something like 11% (for a level annuity - would be lower for an increasing one and again lost if you opted for RPI increases)

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hotncold47 said:

I'm also getting quotes at the moment and have been using Moneyhelper and Hargreaves Landsdown to get an idea what ballpark I'm in. You can enter any medical issues if any to see if your quote will be enhanced but it won't be as detailed as speaking to an IFA/Broker/Provider.

I have no idea your options when a GAR is involved I'm afraid.

The "Making Money Podcast" Guaranteed Income For Life-Annuities Explained featuring someone from Retirement Line Brokers 6 months ago I found quite helpful.

If I read it right your are not taking your 25% TFLS? So that means you will be paying tax via your annuity on your TFLS? Hopefully someone more switched on than me will say if this is good or bad.

Thanks, I did a HL quote (very sneaky, you have to tick the box alongside "bother me with phone calls" to opt OUT of them.) and they can'tget near the imaginary numbers that I have including the GAR.

So I need to see what my provider actually offers in writing with the GAR.

If my maths is right, and assuming that the remaining 75% of the pot buys 75% of the income, as a 20% taxpayer, it takes just over 15 years for the total payouts to equal, after that 25% TFLS falls behind max fixed rate income.

If I planned on dying in 10 years, taking the 25% TFLS would be an easy winner!

(The best RPI rate they offered, assuming a generous 3.5% a year, taking the 25% TFLS takes 29 years to overtake the max fixed rate income when I include 20% tax on the income- I'll double check the calculations tomorrow)

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Putting this one to bed.

I had my interview, and none of the things wrong with me are severe enough to get an enhancement.  :'(

They (Royal London) offered me better staying with them and using the GAR than the best HL managed without (Scottish Widows), although the HL quotes from Scottish Widows worked out about £12 better than Royal London could arrange with them.

So I've been crunching the numbers. (All single life, no guaranteed term)

The best RPI linked offer (Just) allowing a constant RPI of 3.5% takes 24 years to beat the 25% TFLS GAR fixed income, and 28 years to beat the zero TFLS GAR. (Plus I get my 25% now when it has much more purchasing power than in 24 years time) 

AI reckons the average RPI over the last 25 years has been 2.8%, using 3% makes the payback 27 & 30 years...

The zero TFLS GAR fixed income takes 15 years to beat the 25% TFLS GAR (And I get that 25% right at the start when it is worth a lot more than after 15 years, plus I should be getting a State Pension too then which is index linked)

I'll sleep on it but I'm pretty sure I will go for the 25% TFLS and the fixed income with GAR.

At least this thread made me reconsider the TFLS.

Thanks everyone for your input.

dunstonh

The best RPI linked offer (Just) allowing a constant RPI of 3.5% takes 24 years to beat the 25% TFLS GAR fixed income, and 28 years to beat the zero TFLS GAR. (Plus I get my 25% now when it has much more purchasing power than in 24 years time) 

RPI doesn't work like that in reality.   It tends to be relatively low around 2-3% but then you get several years of high amounts before it falls back.  Its the spikes that do the damage.  Not the steady increases.

AI reckons the average RPI over the last 25 years has been 2.8%, using 3% makes the payback 27 & 30 years..

AI is only as good as what you ask.  It would be daft to measure RPI over a period that for much of it had 300 year low interest rates and inflation.    You need to extend that period to include multiple cycles.  Not just one.

As such, the average RPI over the last 50 years is 5.9%.  Over 75 years, it was 5.4%.

IIRC, RL GARs can be adjusted to alternative shapes and still have an uplift applied them.   They use the GAR on the default as the starting point and will adjust upwards or downwards from there depending on the options selected.

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dunstonh said:

The best RPI linked offer (Just) allowing a constant RPI of 3.5% takes 24 years to beat the 25% TFLS GAR fixed income, and 28 years to beat the zero TFLS GAR. (Plus I get my 25% now when it has much more purchasing power than in 24 years time) 

RPI doesn't work like that in reality.   It tends to be relatively low around 2-3% but then you get several years of high amounts before it falls back.  Its the spikes that do the damage.  Not the steady increases.

AI reckons the average RPI over the last 25 years has been 2.8%, using 3% makes the payback 27 & 30 years..

AI is only as good as what you ask.  It would be daft to measure RPI over a period that for much of it had 300 year low interest rates and inflation.    You need to extend that period to include multiple cycles.  Not just one.

As such, the average RPI over the last 50 years is 5.9%.  Over 75 years, it was 5.4%.

IIRC, RL GARs can be adjusted to alternative shapes and still have an uplift applied them.   They use the GAR on the default as the starting point and will adjust upwards or downwards from there depending on the options selected.

If I use a constant 6% RPI, then the break evens are both 16 years. Still a long time and I'll be in my 80s hopefully.

Obviously I can't predict spikes, something like a war with Russia would cause a huge 1975 spike, The Ukraine war spiked it to over 10% on the back of increased gas prices.

Too much of a long term gamble for me.

I could end up crying next year when RPI spikes to 33%, but my main pension would increase by 33% then, and so would the State Pension (unless they abolish it or means test it in the next two years)

Alexland

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Putting this one to bed.

I had my interview, and none of the things wrong with me are severe enough to get an enhancement.  :'(

Congratulations now to win you've got to set about beating the odds and outliving their expectations.

coyrls

In your calculations, have you taken into account that your TFLS will be tax free and your annuity payments will be taxed?