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    • cash1948
    • By cash1948 10th Jul 18, 1:57 PM
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    cash1948
    Is 8.2% guaranteed annuity a good deal?
    • #1
    • 10th Jul 18, 1:57 PM
    Is 8.2% guaranteed annuity a good deal? 10th Jul 18 at 1:57 PM
    My wife (age 60) has a pension with a guaranteed annuity of 8.2%. Our first thought was to take the 25% tax free and the guaranteed annuity, however a couple of years ago I transferred two pensions into a SIPP and have averaged an 11% return pa. I know we will have to pay a financial adviser to sign some form saying we have taken advice, before the pension provider will make the transfer. Should we go with the annuity or transfer to a SIPP and invest ourselves ? Any opinions appreciated.
Page 1
    • Drp8713
    • By Drp8713 10th Jul 18, 2:06 PM
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    Drp8713
    • #2
    • 10th Jul 18, 2:06 PM
    • #2
    • 10th Jul 18, 2:06 PM
    I would say yes, it is a good deal.

    How much is the fund?
    What other guaranteed income does she have?
    Is the annuity index linked?
    Does it pay a death benefit either through a guarentee period or spouses pension?

    11% returns from the stock market are above the long term average, so dont expect that every year, next year could be -40%. Although if I can get 11% i can retire at 45 so heres hoping.
    • cash1948
    • By cash1948 10th Jul 18, 2:10 PM
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    cash1948
    • #3
    • 10th Jul 18, 2:10 PM
    • #3
    • 10th Jul 18, 2:10 PM
    Hi Drp8713 - Fund is 63K, state pension at 66, no index lining and no death benefit. Payment is yearly in arrears.
    • Tom99
    • By Tom99 10th Jul 18, 2:42 PM
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    Tom99
    • #4
    • 10th Jul 18, 2:42 PM
    • #4
    • 10th Jul 18, 2:42 PM
    What multiplier of the 8.2% would you get as a transfer value. If its only x12 then it would seem better to keep the annuity.
    • LHW99
    • By LHW99 10th Jul 18, 2:48 PM
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    LHW99
    • #5
    • 10th Jul 18, 2:48 PM
    • #5
    • 10th Jul 18, 2:48 PM
    Would you have difficulty managing if she should pre-decease you, since there is no death benefit? If so, it could be a reason to consider transferrig.
    • cash1948
    • By cash1948 10th Jul 18, 2:57 PM
    • 44 Posts
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    cash1948
    • #6
    • 10th Jul 18, 2:57 PM
    • #6
    • 10th Jul 18, 2:57 PM
    What multiplier of the 8.2% would you get as a transfer value. If its only x12 then it would seem better to keep the annuity.
    Originally posted by Tom99
    Not quite sure what you mean here, but the transfer value is 12.2 times the 8.2% annuity value.
    • tacpot12
    • By tacpot12 10th Jul 18, 2:59 PM
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    tacpot12
    • #7
    • 10th Jul 18, 2:59 PM
    • #7
    • 10th Jul 18, 2:59 PM
    The lack of index linking could be a problem if your wife needs all the annuity income for living expenses. Over time inflation will reduce the purchasing power of the income, but when the state pension kicks in, this will replace what has been lost over the last six years.

    Whether the annuity rate is good value is something that might need you to review the market for comparable products..
    • dunstonh
    • By dunstonh 10th Jul 18, 3:16 PM
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    dunstonh
    • #8
    • 10th Jul 18, 3:16 PM
    • #8
    • 10th Jul 18, 3:16 PM
    however a couple of years ago I transferred two pensions into a SIPP and have averaged an 11% return pa.
    In a period of growth that has suffered no major negatives. You wont get 11% return as an average.

    Should we go with the annuity or transfer to a SIPP and invest ourselves ?
    Secure income for life vs unsecured income based on investment returns with the potential for you not understanding investment volatility (only based on your comments that you have got 11% p.a. over two years and the suggestion you may think that is going to the norm.

    What are all of the terms of the annuity (as you are missing some - e.g sole or inc spouse)?
    What is the annuity rate of an indexed option?

    What level of investment risk are you taking and can you afford that level of risk? (i.e. needing to reduce your income in a negative period for example).

    Negative periods can take place over days or weeks or even months (such as the credit crunch) or take place over years (such as the three years at the start of the millennium).

    What is your draw rate on the SIPP likely to be?
    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.
    • Tom99
    • By Tom99 10th Jul 18, 3:18 PM
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    Tom99
    • #9
    • 10th Jul 18, 3:18 PM
    • #9
    • 10th Jul 18, 3:18 PM
    Not quite sure what you mean here, but the transfer value is 12.2 times the 8.2% annuity value.
    Originally posted by cash1948

    Replacing a level single life annuity at age 60 would probably cost at least x20 so only getting x12.2 seems poor value unless there are other compelling reasons.
    • bostonerimus
    • By bostonerimus 10th Jul 18, 3:31 PM
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    bostonerimus
    What are the terms of the annuity? Is in Lifetime, single or joint, is it indexed. 8.2% is far better than you'd get for a single lifetime annuity on the open market. We need more details to give an opinion.
    Misanthrope in search of similar for mutual loathing
    • cash1948
    • By cash1948 10th Jul 18, 4:22 PM
    • 44 Posts
    • 57 Thanks
    cash1948
    What are the terms of the annuity? Is in Lifetime, single or joint, is it indexed. 8.2% is far better than you'd get for a single lifetime annuity on the open market. We need more details to give an opinion.
    Originally posted by bostonerimus
    My wife is aged 60 (I'm 70) we would not be dependant on this income for normal living expenses - 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.
    • kidmugsy
    • By kidmugsy 10th Jul 18, 4:28 PM
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    kidmugsy
    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
    • By dunstonh 10th Jul 18, 4:33 PM
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    dunstonh
    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). 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.
    • bostonerimus
    • By bostonerimus 10th Jul 18, 5:02 PM
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    bostonerimus
    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.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 10th Jul 18, 5:16 PM
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    dunstonh
    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). 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.
    • cash1948
    • By cash1948 10th Jul 18, 5:28 PM
    • 44 Posts
    • 57 Thanks
    cash1948
    More info
    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.
    Originally posted by dunstonh
    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
    • bostonerimus
    • By bostonerimus 10th Jul 18, 5:30 PM
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    bostonerimus
    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.
    Misanthrope in search of similar for mutual loathing
    • cash1948
    • By cash1948 10th Jul 18, 5:45 PM
    • 44 Posts
    • 57 Thanks
    cash1948
    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
    Originally posted by cash1948
    It is 8.6% at age 62 and 9.1% at 65
    • cash1948
    • By cash1948 10th Jul 18, 5:47 PM
    • 44 Posts
    • 57 Thanks
    cash1948
    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.
    Originally posted by bostonerimus
    It's a GAR rate of 8.2% at age 60 and the only option is an annuity
    • dunstonh
    • By dunstonh 10th Jul 18, 6:14 PM
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    dunstonh
    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). 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.
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