Fixed Term Annuities - where best to go

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82117952#Comment_82117952

At least one major DC provider ( Standard Life) will not make a partial transfer to an external annuity provider- it has to be 100%- unless you buy a SL annuity then you can use part of the pot.

I suspect they are not unique in not wanting to do partial transfers, although they might be. Anyway as always best to check T's & C's

peterg1965

Some great comments and discussion here, thanks.

My situation is that I want absolute certainty, and that doesn't necessarily come with drawdown investments, thats why I am drawn to fixed term annuities. I am fortunate enough to have all of my necessities more than covered by DB pensions which are index linked. I want to use my £600k DC pot to bridge to State Pension and then to provide an enhanced income over the first 15-20 years of retirement, when theoretically I will be most active.

I will admit to using ChatGTP to help with the strategy, but I am considering a £39k 15 year fixed term maturity (around £400k), without a maturity lump sum, plus a £15k 5 year fixed term annuity (c£67K) which will be the bridge to SP. Not having a maturity lump sum on both annuities will mean that I will have about £130k left after buying the 2 fixed term annuities. I could then invest the £130k for the long term and use it to fund another income after the 15 year fixed annuity ends.

Interesting point that @dunstonh makes about using an IFA who will get no commission but will charge a % fee, which could make more sense with a higher sum. I am about a year away from committing, so have some time to consider.

DRS1

I may have misinterpreted this but it seems to me that at the start of your plan you are going to have a substantial DB pension plus £54k pa from the two annuities. That is going to put you well into higher rate tax territory. Nothing wrong with that but are you giving yourself more income than you need upfront?

One thing which gets discussed on here is "The Number" which is how much do I need to cover my expenditure (whether necessary or discretionary). Maybe you have done that calculation since you say the DB pensions will cover the necessities but that suggests the £54k is for discretionary spending - that is a lot of world cruises and safaris.

As I may have mentioned I am not a fan of drawdown but one thing it does do is allow you to be flexible with the amount of taxable income you take in a year. Plenty of people use that flexibility to stay within the basic rate tax band.

Of course plenty of other people are in favour of having a much higher income early in retirement when you can enjoy it more.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82118415#Comment_82118415

have you tried something like lategenxer’s gilt ladder tool? you can roll your own gilt ladder relatively easily and it’ll also be guaranteed and likely on par with cost.

peterg1965

https://forums.moneysavingexpert.com/discussion/comment/82118476#Comment_82118476

My DB pension is currrently just below the HRT threshold, and with the frozen tax thresholds, will likely breach that in a handful of years. That means I will always be at least, a higher rate tax payer when I eventually retire. With the fixed term annuities I am aiming to try and keep pension income around the £100k mark, accepting that some of my income will begin to erode my personal allowance when it breaches £100k and I will be into the 60% marginal rate. I will try and mitigate this by using the £3600 AA pension contribution limit.

My ethos is that I (we) want to spend all of our pension savings/income whilst we can, the children will inherit the house. So, we will have to hope that the tax thresholds start to rise and that we can limit exposure to the 60% marginal rate. Nice problem to have I suppose.

To the other point about gilt ladders, I really dont want the hassle of doing this, and prepared to take a 'hit' by letting the annuity provider do it for me.

Having been considering for a long time what to do with the DC pot, I am convinced that the strategy of fixed term annuities works well for me, to cover the likely 'more active' period of my(our) retirement.

ali_bear

My recent experience with trying to engage an IFA to purchase a life annuity. Firstly his proposed charges seemed excessive, secondly he tried to talk me out of doing what I intended, thirdly he was very keen to get me set up with one or more fixed term annuities. Make of this what you will - I used a broker for the annuity purchase.

DRS1

You have clearly given this a lot of thought. It should make for some fun early years of retirement.

One thought - when I looked at the FTA quotes one of them had a guaranteed period and the other two had value protection. For some reason I think the guaranteed period version might work out "better" but I also believe there is a difference in how they are treated for IHT purposes. None of that may be relevant for you of course.