Fixed term annuity vs Drawdown

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82081823#Comment_82081823

Certainty of nominal value, but an average of 3% inflation would erode a third of that every decade.

£28.8k in year 1 would be equivalent to £21.4k in year 11 and £15.9k in year 21.

Meanwhile an RPI-linked annuity for a 65-year-old is currently paying 5.4%, so your £375k would get you £20k pa forever.

That para isn't a quote in the preview!

Spivo46

https://forums.moneysavingexpert.com/discussion/comment/82081976#Comment_82081976

Thank you, interesting fact. However, not really challenging a 4% ongoing withdrawal.

QrizB

However, not really challenging a 4% ongoing withdrawal.

Not sure why you'd say that when the lifetime annuity option is 5.4%?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82082057#Comment_82082057

Guaranteed and hands off

4% is a guideline but you’ll still need to pay attention to sequence of returns, be ready to adjust spending if necessary - it will almost certainly create a small amount of ongoing background stress even if you don’t think it will during accumulation. and when you’re 75-80 that money still keeps coming in without you being a little fed up doing the sums and perhaps you can’t be arsed with the spreadsheets anymore or you’re having health issues and your partner needs to do it and they’ve never been engaged with it in the same way you have

retiringin26

https://forums.moneysavingexpert.com/discussion/comment/82081809#Comment_82081809

Inflation is one certainty in pension planning.

A modest annual rate of 2.5% over 20 years erodes £1 down to 60p in today's money.

RogerPensionGuy

I spent much time researching using wealth in a DC SIPP pot to provide best living standards & purchasing power protection over my lifetime for me.

I was previously feeling drawdown was an okay option as I can easy adjust drawdown income due a good DB & state pension and leaving some legacy in the DC SIPP would of been well received, but not needed in my opinions.

I was looking at using a drawdown figure of about 3.5% and that would float a bit due market conditions.

Then when it was announced the DC SIPP IHT rules to be changed it was looking like any legacy wealth would likely attract an overall tax charge of 67% or possibly more I felt drawdown was sliding down my list and I wanted t all/mostly my income streams to be set and not be involved with.

I watched annuity rates roll up and in March this year the rates felt right for me, a lifetime annuity with RPI(no collor) paying just over 5% of purchase price in year one(age 64/65ish) and that included value protection of 100% as the reduction for the value protection looked small enough to make it feel okay.

So rather than playing around with a drawdown as I get older is removed and maybe more emotional or reluctant to draw out & spend also removed.

Two other dynamics pushed my decision process, inflation & taxes, I just don't know how inflation and taxes will pan out for me.

It feels like pensioners with pensions more that average will be under the tax spotlight and I was/am feeling in my lifetime we could see a few hot hot years of inflation, maybe like the 1970s, this would help governments control and pay down debts if they liked. Time will tell.

For me 3.5% in drawdown or over 5% initially with RPI won me over.

The links below maybe interesting otr helpful to others, they were to me.

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Inflation calculator | Bank of England https://share.google/0u3Zp1xFIJf79ob2t

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https://www.ons.gov.uk/economy/inflationandpriceindices/articles/globalinflation/1970to2022

***

https://blog.rangvid.com/2025/10/12/are-we-heading-for-a-new-inflation-surge/

mrklaw

you know how much IHT there is on an annuity? 100%

And the 67% figure is clickbait. Technically possible for the amount over the threshold and if you’re over 75 when you die and if the beneficiary takes it immediately and they’re paying 40% while working

more realistically £1m passes free of any tax, amounts over £1m taxed 40%. What the beneficiary does with it is a separate matter - they could give to children with no tax, they could wait until retirement and draw at 20% or less..

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82082440#Comment_82082440

you know how much IHT there is on an annuity? 100%.

Just for clarity -only fixed term annuities will be included in IHT calculations, not lifetime ones.

And the 67% figure is clickbait.

That is true, and there has been some discussion about stopping the possibility of paying double tax ( IHT and income tax) on the same funds, but I am not sure what the latest is.

DRS1

"you know how much IHT there is on an annuity? 100%.

Just for clarity -only fixed term annuities will be included in IHT calculations, not lifetime ones."

I suspect he was not really talking about IHT - more about the fact that an annuity dies with you (unless of course you get a joint life annuity).

mrklaw

yep that was the point I was trying to make. I didn’t actually know about fixed term. I presume thats only if you’ve paid for guaranteed value or similar? so the same would be the case for a lifetime annuity with guarantee period