Annuity vs Gilt ladder

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82200158#Comment_82200158

Yup, I never understand the logic of "I want to leave a legacy if I die young but not if I die at 90".

I think the main downside of annuities is the lack of flexibility, particularly with these daft new effective tax bands cause by govts wanting to raise taxes but not tax rates - eg using fiscal drag and then having a pension tax allowance.

For instance, if someone has a full state pension (approx £13k) and either drawdown or annuity paying £17k, with the annuity they'll have a taxable income of £30k so be way above the amount to get the pension tax allowance, but with drawdown they could alternate between drawing £34k and £0 so get the PTA every other year. Not very significant next year but will be in the future as the PTA increases.

Or if someone was planning on a total income of eg £40k in retirement (increasing with inflation), they might have the sense to realise that in a few years fiscal drag would probably put them in higher rate tax, and so it would be better to make full use of the BR band now by drawing £50k each year and saving the excess, and use the saved excess to avoid at least some of the 40% tax in the future.

MK62

Yup, I never understand the logic of "I want to leave a legacy if I die young but not if I die at 90".

Perhaps it's more a case of "I want to leave a legacy, but it may not be possible if I live to 9x years"

As for the PTA…..a perfect example of a fudge…..the govt cornered themselves really with unrealistic manifesto commitments (though it could be argued they might well not have been elected without them).

Veloflyer

Bonus Q from me please - If annuity rates drop, will there still be a financial advantage/rough parity with gilt ladders or do they suffer similarly?

Linton

https://forums.moneysavingexpert.com/discussion/comment/82200533#Comment_82200533

Broadly speaking both annuity rates and gilt rates follow market interest rates.

Annuity raters have the advantage that if you are in your mid 70s or above annuity rates are much higher than gilt interest rates since they are returning your own money and the money of those who die earlier than you over a shorter time. So there is little point in buying gilts in later old age unless you are prepared to sacrifice the long term insurance against you lasting longer than your money in order to leave a higher inheritance for your beneficiaries.