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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 23rd Apr 15, 3:56 PM
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    Former MSE Helen
    MSE News: Annuity rates 'hit all time low'
    • #1
    • 23rd Apr 15, 3:56 PM
    MSE News: Annuity rates 'hit all time low' 23rd Apr 15 at 3:56 PM
    Standard annuity rates have collapsed to all-time lows just weeks after new pension freedoms came into force...

    Read the full story:

    Annuity rates 'hit all time low'




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Page 1
    • dunstonh
    • By dunstonh 23rd Apr 15, 4:04 PM
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    dunstonh
    • #2
    • 23rd Apr 15, 4:04 PM
    • #2
    • 23rd Apr 15, 4:04 PM
    They would do as the cross subsidy pool is expected to be lower. So, the mortality gain will be reduced.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Pincher
    • By Pincher 23rd Apr 15, 4:28 PM
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    Pincher
    • #3
    • 23rd Apr 15, 4:28 PM
    • #3
    • 23rd Apr 15, 4:28 PM
    It would be interesting to know how many annuities are taken out each year. Broken down by normal and impaired life, preferably.


    Pension Wise must find it really easy to recruit, assuming there is a glut of ex-annuity clerks on the job market.
    • zagfles
    • By zagfles 23rd Apr 15, 4:36 PM
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    zagfles
    • #4
    • 23rd Apr 15, 4:36 PM
    • #4
    • 23rd Apr 15, 4:36 PM
    And that's flat rate annuities, ie ones where you take the inflation risk and the gamble that inflation won't make your annuity worthless in a decade or two.

    The real "risk free" option, an index linked annuity, would probably get you not much over 3%, ie £1500 a year for a £50,000 pot
    • bmm78
    • By bmm78 23rd Apr 15, 4:50 PM
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    bmm78
    • #5
    • 23rd Apr 15, 4:50 PM
    • #5
    • 23rd Apr 15, 4:50 PM
    On the flipside, the death benefits on annuities are significantly improved and there is much greater choice. Annuities with a 15+ year guarantee period have a small impact on the starting income, and could improve the perceived value for money of the product.

    The headline figures also don't take account of bizarre pricing anomalies as actuaries and underwriters struggle to get to grips with how to price new options (alongside any other commercial pressures they may have). Even with the overall decline in rates, there have been quotes in recent weeks well in excess of the going rate in recent years.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
    • zagfles
    • By zagfles 23rd Apr 15, 6:28 PM
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    zagfles
    • #6
    • 23rd Apr 15, 6:28 PM
    • #6
    • 23rd Apr 15, 6:28 PM
    On the flipside, the death benefits on annuities are significantly improved and there is much greater choice. Annuities with a 15+ year guarantee period have a small impact on the starting income, and could improve the perceived value for money of the product.
    Originally posted by bmm78
    Why? What is the point of a 15 year guarantee? If you want to leave money to your hiers when you die, an annuity surely isn't the way to do it. An annuity is to provide an income for the rest of your life and possibly your partner's, having a guarantee period seems pointless. Why not just drawdown for 15 years then buy an annuity?
    The headline figures also don't take account of bizarre pricing anomalies as actuaries and underwriters struggle to get to grips with how to price new options
    I'd like to see this type of "longevity" annuity option, they fit in well with the new pension freedoms. Is anyone in the UK offering them?

    http://money.cnn.com/retirement/guide/annuities_longevity.moneymag/index.htm
  • jamesd
    • #7
    • 23rd Apr 15, 7:11 PM
    • #7
    • 23rd Apr 15, 7:11 PM
    To complete the MSE example, "In January this year, for example, a 65-year-old with a £10,000 pot could have received £506 a year . Now, they would get a payment of just £476 a year on average". The same person if of state pension age would get £1,040 increasing with CPI inflation and mostly inheritable by a spouse if they used the money to fund living expenses while deferring the state pension. Instead of £476 not inheritable with no inflation link.

    Annuities are almost irrelevant for common pot sizes around state pension age. They are usually soundly beaten by deferring the state pension instead.
  • mastrsg
    • #8
    • 23rd Apr 15, 8:11 PM
    • #8
    • 23rd Apr 15, 8:11 PM
    All time low?

    Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

    Can we have proof that when inflation adjusted they are at an all time low?
    • zagfles
    • By zagfles 23rd Apr 15, 9:10 PM
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    zagfles
    • #9
    • 23rd Apr 15, 9:10 PM
    • #9
    • 23rd Apr 15, 9:10 PM
    All time low?

    Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

    Can we have proof that when inflation adjusted they are at an all time low?
    Originally posted by mastrsg
    How do you inflation adjust them? Have you got a crystal ball which tells you future inflation rates?

    Easier to compare index linked annuity rates now with the past. Pretty sure they've gone down too...
    • kidmugsy
    • By kidmugsy 23rd Apr 15, 9:36 PM
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    kidmugsy
    And that's flat rate annuities, ie ones where you take the inflation risk and the gamble that inflation won't make your annuity worthless in a decade or two.

    The real "risk free" option, an index linked annuity, would probably get you not much over 3%, ie £1500 a year for a £50,000 pot
    Originally posted by zagfles
    I'm glad to see those inverted commas. It's a funny expression, isn't it? Salesmen's patter I suppose.
  • jamesd
    All time low?

    Are we talking about the real rate adjusted for inflation of the headline rare (which is a meaningless figure when unadjusted).

    Can we have proof that when inflation adjusted they are at an all time low?
    Originally posted by mastrsg
    The annuity rate is the percentage value of the pot that is payable as income. 3% of £100,000 or 5% of £100,000 is the same, regardless of what the £100,000 will buy today compared to ten years ago. Inflation is completely irrelevant to it, except when discussing alternative types of annuity like level or inflation linked.
    • Eric_the_half_a_bee
    • By Eric_the_half_a_bee 24th Apr 15, 7:10 AM
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    Eric_the_half_a_bee
    The annuity rate is the percentage value of the pot that is payable as income. 3% of £100,000 or 5% of £100,000 is the same, regardless of what the £100,000 will buy today compared to ten years ago. Inflation is completely irrelevant to it, except when discussing alternative types of annuity like level or inflation linked.
    Originally posted by jamesd

    Surely investors' expectations of future inflation will affect the nominal yield they demand from fixed term and fixed coupon government bonds? And through that affect bond yield-based level annuity rates?


    If so, if expectations of future inflation are at a low point, it should be no surprise that level annuity rates are also at a low point.
  • jamesd
    Yes, I agree that inflation expectations will have that implicit effect on the possible pricing. A different thing from inflation-adjusting the annuity itself, though.
    • zagfles
    • By zagfles 24th Apr 15, 11:14 AM
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    zagfles
    Surely investors' expectations of future inflation will affect the nominal yield they demand from fixed term and fixed coupon government bonds? And through that affect bond yield-based level annuity rates?


    If so, if expectations of future inflation are at a low point, it should be no surprise that level annuity rates are also at a low point.
    Originally posted by Eric_the_half_a_bee
    Then there should also be a narrowing between indexed linked annuity rates and level annuity rates. I don't see that happening...(or is it?)
    • Eric_the_half_a_bee
    • By Eric_the_half_a_bee 24th Apr 15, 11:26 AM
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    Eric_the_half_a_bee
    Then there should also be a narrowing between indexed linked annuity rates and level annuity rates. I don't see that happening...(or is it?)
    Originally posted by zagfles


    I don't have the data but I would be very surprised if that was not happening.
    • Pincher
    • By Pincher 26th Apr 15, 2:45 PM
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    Pincher
    http://www.myretirementincome.co.uk/annuity-rate-graph/


    "In November 1990, annuity rates were 15.64%,"


    We must be due for a guaranteed 13% annuity scam. Something like "We use your pension pot to buy Greek debt at 10% face value, so we can achieve phenomenal income stream based on German bailout money."
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