Fixed Term Annuities

peterg1965

Am considering going down the Fixed Term Annuities route when i retire - likely 3, with terms of 5, 15 and 25 years. Does any one have any knowledge of how far in advance i can secure the annuities? Using Money Helper website calculator the rates/figures look quite favourable at the moment, so locking in a decent rate would be potentially be beneficial for me.

Thanks

dunstonh

Does any one have any knowledge of how far in advance i can secure the annuities? 

You cannot defer the start date. However, it is possible to buy a fixed term annuity on a platform and have the income stay within the pension (where it can be kept as cash and earn interest or invested). No tax would apply as no income has left the pension wrapper. When you do want it to start, you just set up a regular withdrawal from the cash using drawdown.

However, I don't believe any of the DIY platforms currently offer that. It is something that is available on IFA platforms.

Using Money Helper website calculator the rates/figures look quite favourable at the moment, so locking in a decent rate would be potentially be beneficial for me.

You are about 6 months off the peak for annuity rates, and they are expected to drop, but the UK Government still has the moron premium, and that could get worse even if interest rates fall.

peterg1965

https://forums.moneysavingexpert.com/discussion/comment/81866083#Comment_81866083

Thank you. I am probably about 9-10 months off being able to commit so i will have to see what happens in the meantime. Will fixed term annuities reduce at the same level/rate as lifetime, in a period of reducing interest rates, do you think?

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/81866458#Comment_81866458

Yes. They broadly go up and down in the same way. Remember that gilt yields are the primary driver of the annuity rate. Not interest rates. Historically, interest rate adjustments would be reflected in gilt yields but markets have been adding a moron premium to the UK. If the Government becomes competent in the near future, in the eyes of the markets, then the annuity rates will drop faster. If the incompetence worsens relative to current levels, in the eyes of the markets, the moron premium increases, and annuity rates will rise.

Look at the chart below, and you can see how closely gilt yields influence the annuity rate and that the base rate changes don't necessarily result in a change in annuity gilt yields or annuity rate.

SVaz

If they can’t be deferred, why do the calculators on Canada Life etc. allow you to put in a start date way into the future?