Fixed term annuity

chrispies2020

Good morning

I am about to start drawing on the smallest of the three pension pots I have. I am currently 63 and out of work since redundancy last year.

Generally, we are OK for money with 3.5 years to go until state pension age. I was about to move forward with an income drawdown arrangement on the smallest of my 3 pension pots. After talking to Pension Wise (which made my head hurt due to the complexity of the information supplied), I used the provided link and used their annuity calculator to check this option. I was surprised that the annuity figures were better then expected, on a fixed term basis to see me through to my state pension.

I had always thought of an annuity as being a poor choice, due to being 'locked in' after it is set up. However, I am now rethinking this.

How do you all feel about annuities atm? Apart from functioning to provide me with the monthly payouts I require, I do like the idea of the extra peace of mind an annuity might give. I find the whole situation with pensions/IFA's/retirement planning extremely stressful. It feels like I am moving forward into a minefield which may blow up on me at any moment :-) ! Any comments you may have about my annuity plan would be much appreciated.

Many thanks

Tree_pipe99

I do think a good retirement plan needs an element of low/zero risk income.

If annuity rates are good then they are an excellent way to de-risk a DC pension pot.

I'm fortunate to have a DB pension as my main income, otherwise I would be looking at an annuity for my DC pension.

mrklaw

if literally a 3-4 year annuity I’d also look at gilts which its likely similar to what the annuity providers are using. might be much of a muchness and the annuity may be simpler, but worth checking.

also for a short period just estimate with a calculator if you put it all in cash/MMF earning maybe 3.5% inside the pension and just drew 25% a year how much would that give you.

I do think for such a short period and if you think you need to spend the entire amount down, it should at least be invested almost/fully in stable assets like gilts/MMF or similar

DRS1

You are talking about a fixed term annuity for 3.5 years so it is going to give you a very high income (especially if the money is all gone by the end of the 3.5 years). When I was looking at a lifetime annuity a few years ago I got quotes for a level 5 year fixed term annuity which were breathtaking.

You may want to look at lifetime annuities as well and see how they compare (a lot lower income but it will last for the rest of your life not just 3.5 years).

You can also get fixed term annuities which leave a pot of money at the end of the fixed term which can be used to buy another annuity. Again that gives you a lower income. But it may counter the "I'm locked in" concern.

Of course if you are just looking for a way to cover the 3.5 years until SPA then it will do the trick and give you some peace of mind compared to drawdown. No need to worry about "the market" moving around.

dunstonh

How do you all feel about annuities atm?

They're near their recent peaks. And certainly viable again for those whose objectives they meet

After talking to Pension Wise (which made my head hurt due to the complexity of the information supplied),

PensionWise is very simplistic. It also doesn't cover all options. For some people, it will be quite valuable, but for other people it's a complete waste of time.

 I find the whole situation with pensions/IFA's/retirement planning extremely stressful.

Using an IFA should take the stress away. They pretty much recommend what you should be doing. An FA, on the other hand, will throw a lot of the choices back towards you.

It feels like I am moving forward into a minefield which may blow up on me at any moment 

You sound like a perfect annuity buyer. Given the alternative is to remain invested, if the annuity and its simplicity and straightforwardness gives you concerns, then goodness knows what investing does.

chrispies2020

https://forums.moneysavingexpert.com/discussion/comment/82088471#Comment_82088471

I think, in terms of being stressed out by the whole process of managing pension savings, I would say I'm one of the more clued up and least anxious people I know, personally :-)

If you really enjoy this sort of thing and have a solid grasp on what the best course is, then it may not be clear just how difficult decisions regarding important matters such as life savings and pensions can be. I know at least one other person who suffers from extreme anxiety when it comes to making good choices, because the path forward is so potentially complex and opaque.

I suppose this is just capitalism at play. It often seems to be a lottery where money can be made and then lost, depending on the level of knowledge individuals have and the overall risky nature of the path we all have to walk.

Regardless, thanks for your comments. You have helped me to make what I hope is a good choice :-)

silvercar

So which is it? @dunstonh

Using an IFA should take the stress away. They pretty much recommend what you should be doing. An IFA, on the other hand, will throw a lot of the choices back towards you.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/82089055#Comment_82089055

I spotted it just as before you typed this and I corrected it. Obviously wasn't quick enough. ;)

Albermarle

If you really enjoy this sort of thing and have a solid grasp on what the best course is, then it may not be clear just how difficult decisions regarding important matters such as life savings and pensions can be

Yes some people on these forums sometimes forget that outside these walls, the level of ignorance about personal finances is quite frightening and the whole subject very daunting. One problem being that many people struggle with relatively simple concepts like percentages and averages. Many also just avoid thinking about it, which of course does not help.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82089061#Comment_82089061

Have to concur with this assessment of the general populace.

In any gathering of friends, acquaintances and relations, the extent of financial illiteracy and general lack of desire to engage can be very depressing.

fcjf

https://forums.moneysavingexpert.com/discussion/comment/82089133#Comment_82089133

Whenever I have previously brought up the subject of pensions or personal finance with friends I have literally seen them roll their eyes and move away. Since taking early retirement at 57 a couple months ago the level of interest has increased.