pensionnd

scruffyoldman

i have a pension pot worth £232000 after i took the 25% tax free limp sum
i am closing a business which will have a small amount of money left in it after tax for 2026-2027
i have had advise that an annuity offers low yield per year (max 15000/yr) but if i was to die the unused pot stays with the provider and would not be passed on to my wife
on the other hand if i put it with an investment management company the forecast yield may be higher to start with, but the fees are high and the yield could drop.
having worked for 49 years i am worried the wrong decision could be a disaster

El_Torro

You can buy an annuity that pays out to your wife, either 100% of its value or less than that. Of course you would have to pay for this benefit by getting a smaller monthly payout yourself. 

Yes, you can draw down from the pot rather than buy an annuity. As you may know though your investments do not grow steadily, some years they can grow substantially, other years investments can even drop in value. 

Deciding which of the two options to take is a big decision, yes. Sounds like an annuity that pays out to your wife if you die first is the most suitable. Though that's just me making assumptions based on what you have written in your opening post. 

Exodi

Do you need to take out the tax free lump sum? Just because you could, doesn't mean you should.

Assuming you do, you must remember the pro's and con's of both options.

Yes with an annuity you are buying a guaranteed income for life, there is no refund if you die (there is no 'unused pot' as you characterise it). You could die in 10 years and it could turn out to be a bad decision, you could due in 40 years and it could turn out to be a fantastic decision. Unfortunately none of us know when we will die.

Don't understate the value in a guaranteed income (which can also be index linked).

Compared to investing, which is very much manual and unpredictable. Some on this forum cite a SWR at around 3.5% in the UK, meaning you could take out ~£8k per year, without it theoretically affecting your capital. Obviously this is nearly half what an annuity would pay out. If you were to take out more, your capital will reduce over time. Grimly, you hope you die before this happens, but there are no guarantees. Running out of money is a big problem. It's also not in your control, Trump could invade Greenland tomorrow, the EU could retaliate militarily and your investments plunge 30% overnight in anticipation of WWIII. An annuity holder does not have these concerns.

It's all about risk and reward, and what you value.

I'd also be cautious of where you're getting your advice for and, as you identify, using an investment management company who may swallow any upside to investing in fees.

Many do both - use half your pot for an annuity so you have a guaranteed baseline income (including the state pension) that you can live off in the worse scenario, and the other half remains invested to facilitate discretionary spending.

Despite myself sounding pro-annuity, I'm not really, but I totally understand their value, especially to those not au fait with investing/bonds/etc.

scruffyoldman

is there anywhere i can see which are the best performing annuity performers and which are the best performing pension investment companies

xylophone

Example annuity information


https://www.legalandgeneral.com/retirement/pension-annuity/?cid=PPCGENPAnnuitiesPureQuestionsGoogle001&ef_id=CjwKCAiAmp3LBhAkEiwAJM2JUOqBjQ8UtWmMxjrN7eWDWXVhOK5Ld1gbAXX_60-K0tHDvSroFLO5QxoCnaAQAvD_BwE:G:s&s_kwcid=AL!12569!3!772057166611!b!!g!!annuity definition!20396727483!152776534738&nst=0&gclsrc=aw.ds&gad_source=1&gad_campaignid=20396727483&gbraid=0AAAAABnsbAGLmah77kBIWmTwtP3Z19Cbh&gclid=CjwKCAiAmp3LBhAkEiwAJM2JUOqBjQ8UtWmMxjrN7eWDWXVhOK5Ld1gbAXX_60-K0tHDvSroFLO5QxoCnaAQAvD_BwE



Have you and your wife reached State Pension Age?

If not, have you checked your State Pension Forecasts?

https://www.gov.uk/check-state-pension

Exodi

scruffyoldman said:

is there anywhere i can see which are the best performing annuity performers and which are the best performing pension investment companies

You can get a feel of some of the different types of annuity rates (like El_Torro mentioned) here:

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

The investment question doesn't really make sense and it is generally poor advice to consider looking at the best performance in isolation and investing in that, else your whole retirement would be banking on Nvidia continuing to grow after it has 10x'd in the last 3 years.

Diversification is often the name of the game, you don't want all your eggs in one basket. Even if you looked at index funds, some would see it as very risky investing all in on one country like the US.

The best performing fund managers will likely be those that took the highest risk, and you won't see the other high risk fund managers who lost money or underperformed. Survivorship bias.

Risk and return are typically inversely correlated and I suspect you won't want to take on mountains of risk with your retirement.

dunstonh

i have had advise that an annuity offers low yield per year (max 15000/yr) but if i was to die the unused pot stays with the provider and would not be passed on to my wife

annuity rates are only just off their highest levels in the last 18 years.   On the figure you have given, it equatse to an annuity rate of 6.46%.   It is a matter of opinion on whether you feel that is low or not.

You don't have a pot with an annuity.  An annuity is an insurance product.  You buy the annuity.        The death benefits you select at the outset will depend on what goes to your wife.  e.g. value protect, gurantee periods of upto 30 years, joint annuity upto 100% etc.

on the other hand if i put it with an investment management company the forecast yield may be higher to start with, but the fees are high and the yield could drop.

Why are you only looking at the yield and not the total return?     Investment average on a 60% equities portfolio  is around 8-9% p.a. but the yield is only going to be around 2% with the other 6-7% being growth.

is there anywhere i can see which are the best performing annuity performers and which are the best performing pension investment companies

Pension companies do not perform.  The investments within the pension give the performance.    Modern whole of market pensions have over 30,000 investments available to them.  You can combine the investments, meaning you have a near infinite number of variations.       Some of those investments will be low risk and range upward to high risk or speculative.     If you relied on performance alone, it would almost certainly mean investing at the high risk end which is unlikely to be suitable given your objective and lack of knowledge.

You can get example annuity rates on the moneyhelper website but you can usually get better rates than those shown via an IFA or annuity broker.

Going back to your comment, "I have had advice", who gave that advice?     An FA is a sales agent for the company they represent, and they are best avoided.  An IFA is the type of adviser you should have (the IFA works for you and not an investment company or provider and can select from the marketplace).  Or was the "advice" just third party comments?     - I am just concerned that the advice you have been given seems not to have been taken in (e.g. lack of understanding of death benefits and references to yield).

Albermarle

Exodi said:

Do you need to take out the tax free lump sum? Just because you could, doesn't mean you should.

Assuming you do, you must remember the pro's and con's of both options.

Yes with an annuity you are buying a guaranteed income for life, there is no refund if you die (there is no 'unused pot' as you characterise it). You could die in 10 years and it could turn out to be a bad decision, you could due in 40 years and it could turn out to be a fantastic decision. Unfortunately none of us know when we will die.

Don't understate the value in a guaranteed income (which can also be index linked).

Compared to investing, which is very much manual and unpredictable. Some on this forum cite a SWR at around 3.5% in the UK, meaning you could take out ~£8k per year, without it theoretically affecting your capital. Obviously this is nearly half what an annuity would pay out. If you were to take out more, your capital will reduce over time. Grimly, you hope you die before this happens, but there are no guarantees. Running out of money is a big problem. It's also not in your control, Trump could invade Greenland tomorrow, the EU could retaliate militarily and your investments plunge 30% overnight in anticipation of WWIII. An annuity holder does not have these concerns.

It's all about risk and reward, and what you value.

I'd also be cautious of where you're getting your advice for and, as you identify, using an investment management company who may swallow any upside to investing in fees.

Many do both - use half your pot for an annuity so you have a guaranteed baseline income (including the state pension) that you can live off in the worse scenario, and the other half remains invested to facilitate discretionary spending.

Despite myself sounding pro-annuity, I'm not really, but I totally understand their value, especially to those not au fait with investing/bonds/etc.

Do you need to take out the tax free lump sum? Just because you could, doesn't mean you should.

OP said i have a pension pot worth £232000 after i took the 25% tax free limp sum

Compared to investing, which is very much manual and unpredictable. Some on this forum cite a SWR at around 3.5% in the UK, meaning you could take out ~£8k per year, without it theoretically affecting your capital. Obviously this is nearly half what an annuity would pay out. If you were to take out more, your capital will reduce over time. Grimly, you hope you die before this happens, but there are no guarantees. Running out of money is a big problem.

To clarify more for the OP
The Safe Withdrawal rate ( SWR ) is actually based on a withdrawal rate that reduces the chance of you running out of money before say age 95, to a very small %.
This is based on historical data and looking at the worst case scenarios for investment performance
In reality if there are not too many worst case scenarios in the financial markets during your retirement , you might well end up with significantly more than you started with.
However as it will all be in the future nobody can really know what will happen.