Is 8.2% guaranteed annuity a good deal?

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  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    It seems to me to be an attractive way to diversify your portfolio - your wife would have the bond-like annuity and you could hold equities in your SIPP.

    Is she still working? Has she any other income at the moment or in prospect?
    Free the dunston one next time too.
  • dunstonh
    dunstonh Posts: 116,387 Forumite
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    the fund is £63K, with a guaranteed annuity rate of 8.2%. The terms are single life, no index linking, no death benefits, payable annually in arrears.

    1 - what is it with an indexation included?
    2 - what is it with spouse added?

    With many GARs, the single life quote is the basis point that all alternatives are priced from. So, the addition of an older spouse may not make any or hardly any difference. Indexation included will make a difference but it may not be as much as it would be on an open market rate.

    And as already asked, what would be the draw rate you would take on the SIPP?
    How much capacity for loss do you have? (i.e is there scope for the income go down during negative periods).
    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.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    8.2% for the single life for someone aged 60 is a good deal. But look into how much it would cost to add you onto the annuity as your wife is 10 years younger than you and women generally live longer than men it might not be too expensive.

    Whether you buy the annuity or not will depend on your other income sources and need for income. It could be a nice source of guaranteed income as part of your income floor along with state pension....you could think of it as part of your fixed income allocation.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • dunstonh
    dunstonh Posts: 116,387 Forumite
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    8.2% at age 60 sounds like an ex Pearl Assurance RAC. If so, that would be 9.6% at 65. Plus, it is available with indexation based and spouse based off the single life rate.

    Also, more importantly, A number of these didn't just have a GAR but also a Guaranteed minimum maturity value at 60/65/70/75. Many of these are highly attractive for a guaranteed return.

    I told someone to keep theirs back in 2004. It was valued at £27435. The projected value at that time was the same across all bands at £82,500 at 65. We tracked it over the years and he just got to 65 and the value is £82,504. We are now considering leaving it until later as the guarantees dont stop at 65 but could carry on until 75.

    That is a guaranteed rate of return of over 8% a year. An absolute no-brainer to keep it. Not all of them had this but many did.

    Of course, I am sure you know all this already as you are doing your own reseach. I am just pointing it out in case you didnt.
    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.
  • cash1948
    cash1948 Posts: 44 Forumite
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    dunstonh wrote: »
    8.2% at age 60 sounds like an ex Pearl Assurance RAC. If so, that would be 9.6% at 65. Plus, it is available with indexation based and spouse based off the single life rate.
    It started out as Scottish Equitable - got taken over by Aegon (who do not provide annuities) but have selected Legal and General who will honour the GAR
    Trying to do the right things right :)
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    I can believe an 8.2% payout rate from an annuity, but an 8% accrual rate with no strings sounds almost too good to be true....does that require that you turn it into an annuity? In the States I have a deferred annuity currently accruing at 4.5% a year that has very flexible drawdown options and I'm glad of that guaranteed rate in these times. The OP looks to have a good deal as long as it fit's in with the rest of their plan.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • cash1948
    cash1948 Posts: 44 Forumite
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    cash1948 wrote: »
    It started out as Scottish Equitable - got taken over by Aegon (who do not provide annuities) but have selected Legal and General who will honour the GAR

    It is 8.6% at age 62 and 9.1% at 65
    Trying to do the right things right :)
  • cash1948
    cash1948 Posts: 44 Forumite
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    bostonerimus wrote: »
    I can believe an 8.2% payout rate from an annuity, but an 8% accrual rate with no strings sounds almost too good to be true....does that require that you turn it into an annuity? In the States I have a deferred annuity currently accruing at 4.5% a year that has very flexible drawdown options and I'm glad of that guaranteed rate in these times. The OP looks to have a good deal as long as it fit's in with the rest of their plan.

    It's a GAR rate of 8.2% at age 60 and the only option is an annuity
    Trying to do the right things right :)
  • dunstonh
    dunstonh Posts: 116,387 Forumite
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    I can believe an 8.2% payout rate from an annuity, but an 8% accrual rate with no strings sounds almost too good to be true....does that require that you turn it into an annuity?

    No need to buy an annuity. There are quite a lot of pre 1988 plans that have this. These are legacy plans from a different era. Little gems that exist for people that have them. Ironically, many people that have them dont realise the value (or had them but transferred away without realising).
    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.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    dunstonh wrote: »
    No need to buy an annuity. There are quite a lot of pre 1988 plans that have this. These are legacy plans from a different era. Little gems that exist for people that have them. Ironically, many people that have them dont realise the value (or had them but transferred away without realising).

    Ahh yes. The payout rate on a single life annuity with 10 year guarantee for pre 2000 contributions to my deferred annuity is 8.4%, but for contribuitions made in 2017 it's 6.2%. If I was to annuitize I'd get some combined rate. The accrual rate also has a "vintage structure" . the structure you describe seems to have locked in some high historical interest rates that are great for anyone who owns them.....but pretty poor business for the insurance companies.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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