Annuities

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
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flwflw Forumite
8 Posts
What factors should i take into account when deciding when to take my annuity

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  • ReportInvestorReportInvestor Forumite
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    1) Do you need the income now?
    2) Do you think annuity rates will fall or rise in future? If you think they will rise, you might wait. This depends on your view of medium/long term gilt yields which respond to a variety of factor including interest rates & inflation. It also depends on whether you think that we are going to continue living longer and longer. And also whether you think the actuaries have got their current sums right. [If they are underestimating longevity that could see future annuity rates fall, if they are overestimating then future annuity rates could rise.]
    3) How desperate are you to pass on your pension pot to your heirs? This could be a factor in deciding to leave the decision to age 75 (the point at which you have to make a decision).
    4) Is your personal health / family health history good/average? Do you have reason to think that there is a higher than average chance of you not reaching 75? If you died age 73 and had delayed taking an annuity, your heirs would inherit your pension pot and if you had taken an annuity you would have got less out of it than average. (Although if poor health is documented you could also consider an impaired annuity.)
    5) Do you think that there is any chance that government will relax the legislation about compulsory annuity purchase in future, either by allowing alternatives or by extending the compulsory purchase age higher than 75?
    6) What is the past investment performance of your pension fund, and how well placed is it to do well in the future (were you to delay your annuity purchase)? High charges won't help here. Delay carries both investment risks and opportunities.

    Whenever you decide, make sure you shop around for the best deal as it could boost your income by up to 20% :).

    dh may add other factors/emphasis and EdInvestor may point out that you don't have to take an annuity at all.
  • dunstonhdunstonh Forumite
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    Seems fine. I will add attitude to risk to the above though.

    Annuities are the virtually risk free option. Particulary if you go with index linked annuities. The other options which you must have seen splashed over a number of threads involve investment risk.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    Details of the plans to end compulsory annuities next year are here:

    http://www.lifetimelimit.com


    The main risk with level annuities is inflation which will halve the spending power of the annuity income over 20 years at even the current (low) rates.
    Trying to keep it simple...;)
  • dunstonhdunstonh Forumite
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    The main risk with level annuities is inflation which will halve the spending power of the annuity income over 20 years at even the current (low) rates.

    Wrong. please do not mistake the product with one of the options. Annuties can be level or increasing. Increasing annuities counter inflation.

    What you are saying is a bit like saying House insurance doesnt cover for accidental damage. Whereas it does if you select that option.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    Increasing annuities counter inflation.

    Of course they do.But most people don't buy them, because they are regarded as poor value: how long does it take for them to catch up with level annuities in the amount of income you receive? Is it 17 years?

    The ideal of course is an index-linked pension, like the two state pensions - I suspect many people aren't aware of their value.It would cost more than 90k for a 60 year old women to buy the basic state pension income and more than 80k for a man.That's before you get to the S2P/SERPS top up.

    So to get a 20k index linked income per year, you're looking at accumulating a pension fund of nearly 400k.Scary stuff for most people - how many will have a shortfall, just as with endowments?
    Trying to keep it simple...;)
  • dunstonhdunstonh Forumite
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    Of course they do.But most people don't buy them, because they are regarded as poor value: how long does it take for them to catch up with level annuities in the amount of income you receive? Is it 17 years?


    8-12 years depending on the rate of indexation.

    Most people dont take drawdown as they dont want the risk. Plus the income under drawdown will be around the level with index linked annuities so they you could say drawdown is really the worst option when it comes to income.
    how many will have a shortfall, just as with endowments?

    The same shortfalls which could easily occur with drawdown. After all, endowments needed a target growth rate in more or less the same way.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ReportInvestorReportInvestor Forumite
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    It takes 12 years to catch up for a man aged 65 choosing 5% indexation.
  • EdInvestorEdInvestor
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    It seems that IFAs sell more investment-linked annuities ( eg With-profits annuities) than income drawdown plans.

    Why is this?

    After all, these annuities expose you to both investment risk AND you lose your capital.

    At least with drawdown if you invest it well (and it's quite easy to obtain a yield of more than 5% with quite a conservative asset allocation so you don't need to dip into the capital) and your fund and income will grow.

    That's not the case with the annuities. IMHO no-one in his right mind would buy one of these, yet people do.Why are these annuities apparently regarded as less risky than income drawdown? :confused:
    Trying to keep it simple...;)
  • PalPal Forumite
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    EdInvestor wrote:
    It seems that IFAs sell more investment-linked annuities ( eg With-profits annuities) than income drawdown plans.

    It "seems" does it? You have proof of this or are you making it up? Even if true, perhaps it is evidence of people making informed decisions on the basis of good financial advice? Of course if you have evidence that IFAs deliberately missell investment linked annuities in order to make more money for themselves then please feel free to post it.
    Why are these annuities apparently regarded as less risky than income drawdown?

    For all the reasons spelled out to you in the thread at the top of the pensions board, (http://forums.moneysavingexpert.com/showthread.html?t=72831&page=6&pp=10) where your arguments against annuities and in favour of income drawdown have been pretty much countered to the point that you simply stopped attempting to discuss the issues raised and changed the subject instead.

    It appears to me from the recent series of threads that you are either not reading the points being put to you, are not understanding the points put to you, or you are deliberately ignoring them. This is no different from troll posting and will be treated as such in future.

    If anyone wishes to discuss income drawdown, annuity purchase or SIPPS in future please do so only in the threads at the top of this board.

    If anyone wishes to suggest that people look into these options then please make sure it is relevant to the original posters questions, and then feel free to do so by referring people to the threads at the top of this board.

    At the moment almost every thread on this board is turning into a debate on the same subjects which are more than adequately covered on the two threads at the top of this page. If you do not believe that those two threads are comprehensive enough then feel free to add to them. I have no problem with the occasional thread drifting but this is getting ridiculous.

    The original poster's question has been more than adequately answered by reportinvestor and Dunston so this thread is closed.

    Pal
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