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    • hjd
    • By hjd 6th Dec 17, 10:52 PM
    • 1,091Posts
    • 8,041Thanks
    Pension quote query
    • #1
    • 6th Dec 17, 10:52 PM
    Pension quote query 6th Dec 17 at 10:52 PM
    I have a financial planner looking at my pension options. We'll have a meeting to discuss the options shortly but at the moment I am confused.
    Option from just one pension fund
    you could have a pension of 3,977 p.a. (no indexation ) or 2,276 p.a (with indexation)
    or from combining the two
    you could take a pension of 9,168 or 5,247.

    Running the figures on the first option - even if there was 10% indexation a year (which seems highly unlikely) the total sum paid out at the flat amount of 3,977 would take 38 years to come to the same as 2,276 indexed. Obviously there is inflation.
    Bearing in mind these are enhanced quotes due to my declared health conditions, why would I want to go for the lower figure with indexation? Surely the flat rate higher figure is going to be best.
    Am I missing something obvious? I have just had my 60th birthday by the way.
Page 1
    • dunstonh
    • By dunstonh 6th Dec 17, 11:18 PM
    • 92,638 Posts
    • 59,949 Thanks
    • #2
    • 6th Dec 17, 11:18 PM
    • #2
    • 6th Dec 17, 11:18 PM
    indexation is compounded.

    I have just had my 60th birthday by the way.
    Any reason you are considering annuity? 60 doesnt give you great rates.

    Most people dont go with indexation. Typically the annuity is just a small part of their overall income in retirement. State pension is the big thing and that has an indexation. So, taking more in the active years and getting less (in real terms) in later years tends to be preferred option.
    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.
    • hjd
    • By hjd 7th Dec 17, 7:02 AM
    • 1,091 Posts
    • 8,041 Thanks
    • #3
    • 7th Dec 17, 7:02 AM
    • #3
    • 7th Dec 17, 7:02 AM
    Annuity is just one option.
    I have compounded the 10% in my calculations.
    My pensions were set up when I was in my early 20s with 60 as my preferred retirement age anyway. Drawdown will also be considered but I just can't see how the 2 options on the same scenario work and why anyone would choose the indexed figures over the flat rate given those figures as options.
    • Malthusian
    • By Malthusian 7th Dec 17, 10:35 AM
    • 4,111 Posts
    • 6,445 Thanks
    • #4
    • 7th Dec 17, 10:35 AM
    • #4
    • 7th Dec 17, 10:35 AM
    Annuity is just one option.
    I have compounded the 10% in my calculations.
    Originally posted by hjd
    Then you must be doing something wrong - with 5% escalation I make the crossover point to be 21 years, not 38. At 10% it's 11 years.

    The reason someone might choose the index-linked annuity is if they need 2,276 a year to live on, and the security of knowing it will retain its value for their whole lifetime is more important than having extra spending money in the early years. But as dunstonh said, it's quite rare. For most people in that income bracket, State Pension covers essential expenditure and the annuity is discretionary spending, which makes inflation-proofing less valuable.

    When people buy care annuities in their 80s or 90s they are usually index-linked because care costs go up over time, but when people buy annuities in their 60s (those who still do) they usually buy level annuities because expenditure tends to decrease as you become less active - until care comes into the equation.
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