Annuities

[Skyedriver]

65, most of my pension, not a huge amount, in a SIPP, mainly equity funds worldwide, but now taking State Pension. I'm wondering about the last pension fund outside of the SIPP and despite me slagging off Annuities for the last 15 year or more I'm thinking it might just give me a safe haven of regular income.
Are Annuities improving? Or still not a worthwhile option. Used to reckon on not getting your initial sum back until you were around 89!

[sidicks]

Skyedriver said:

65, most of my pension, not a huge amount, in a SIPP, mainly equity funds worldwide, but now taking State Pension. I'm wondering about the last pension fund outside of the SIPP and despite me slagging off Annuities for the last 15 year or more I'm thinking it might just give me a safe haven of regular income.
Are Annuities improving? Or still not a worthwhile option. Used to reckon on not getting your initial sum back until you were around 89!

Annuities provide a guaranteed income in retirement, increasing with inflation (if you do choose) for as long as you live. You can choose to have the annuity income guaranteed to be paid for a minimum number of years (regardless of how long you live) and you can choose to have a reduced income paid to a spouse in the event of your death.

In order to provide these guarantees, insurers have to invest in low risk assets (and hold spare contingency capital) to match their liabilities, which inevitable lead to lower returns.
Likewise, the mortality experience of those taking out annuities is expected to be materially better than the population mortality, due to socioeconomic factors and selective effects.

Those with known medical conditions can be underwritten to achieve higher annuity income through enhanced or impaired annuities reflecting their shorter expected lifetime. Again, this means that the residual ‘normal’ annuitant population is expected to experience substantially better (lower) mortality than the rest of the population.

If you live to your expected lifetime, you’ll effectively get back your initial investment plus interest (reflecting government bond yields plus a margin). If you live shorter than this, you’ll subsidise those who live longer.

Overall, it depends whether you want to take more investment risk (and longevity risk) in pursuit of a higher, but not guaranteed, income or are happy for the no risk, lower return approach.

If you have a large pot, it might make sense to guarantee part of your income and take risks with the rest.

[Skyedriver]

sidicks said:

Lot of factual info

If you have a large pot, it might make sense to guarantee part of your income and take risks with the rest.

Cheers, yes knew the annuity detail thanks, it's your last sentence I'm wavering on, it isn't a large "pot" compared to many on here I suspect but it would guarantee a certain level of income. Think I'll look around and see what i would get at the moment and leave the rest "at risk" .

[millen]

Telegraph Money front page on Saturday said annuity rates (non-indexed) are back to their pre-Brexit vote levels. I can't locate it online but it quoted a couple of specimen rates which looked better than 20:1 at age 65.

[sidicks]

Skyedriver said:

Cheers, yes knew the annuity detail thanks, it's your last sentence I'm wavering on, it isn't a large "pot" compared to many on here I suspect but it would guarantee a certain level of income. Think I'll look around and see what i would get at the moment and leave the rest "at risk" .

I guess what is ‘large’ is different for different people - the sentiment still stands, you don’t have to do all or nothing, you could guarantee an income with part of your pension savings and them take more risk with the remainder.

[Skyedriver]

millen said:

Telegraph Money front page on Saturday said annuity rates (non-indexed) are back to their pre-Brexit vote levels. I can't locate it online but it quoted a couple of specimen rates which looked better than 20:1 at age 65.

I thought I'd heard they were going up a little.
If anyone can point me towards a current list please.
Or advise if they really are improving because the list I saw showed a ready reduction over the last 15 years or so,

[CarlosFandango11]

Skyedriver said:

I thought I'd heard they were going up a little.
If anyone can point me towards a current list please.
Or advise if they really are improving because the list I saw showed a ready reduction over the last 15 years or so,

https://www.hl.co.uk/retirement/annuities/best-buy-rates

This show the last three years.

[hornmeister]

Find out what the transfer value of your pension is and then bung your details in here:

https://www.moneyadviceservice.org.uk/en/tools/ann...

It's let you know what sort of income you can expect depending on how long you want it guaranteed for whether there's a spouses income etc.

The guess how long you're going to live and calculate how much you'll get back. I'd be hugely surprised if you find an annuity worth considering as rates are pretty shocking these days.

Whilst Sips have their risks, sensible investment planning means you can mitigate this to a certain extent. There are also some providers offering secure income options and income choices are pretty flexible now. Given the favourable tax treatment of pensions should you die early, also makes that annuitiesless popular now.

[cailean]

Shocking is right, I just had a play of that site and the following is an example (none of the inputs are true as I was just curious...)

Your income

£1,781 Monthly
£21,374 Yearly
£239,461 10 yearly

Your choices

£1,000,000 pension pot
Monthly in arrears
Income starts at age 60
Single income
Guarantee period of 25 years
Increase by RPI

[sidicks]

cailean said:

Shocking is right, I just had a play of that site and the following is an example (none of the inputs are true as I was just curious...)

Your income

£1,781 Monthly
£21,374 Yearly
£239,461 10 yearly

Your choices

£1,000,000 pension pot
Monthly in arrears
Income starts at age 60
Single income
Guarantee period of 25 years
Increase by RPI

Interest rates are low and the real yield on index-linked gilts is negative..!