Annuities - who buys them?
Discussion
I got a pension statement through from one of my company pensions yesterday. I worked for this company for about 6 years and the current pot value is about £150k. They are estimating that if I draw this pension at normal retirement age (which means there are still several years of growth on that pot), it will yield me an amazing.......£4300 per annum!
By that token I'd have to hang around long enough to get a telegram from Auntie Liz before I even had hope of getting the value of my pot back.
I do of course have other options for taking the money and have a pension advisor on the case. But my question remains - why would anyone even consider buying an annuity on these types of figures, unless they were a direct descendant of the world's oldest man/woman?
By that token I'd have to hang around long enough to get a telegram from Auntie Liz before I even had hope of getting the value of my pot back.
I do of course have other options for taking the money and have a pension advisor on the case. But my question remains - why would anyone even consider buying an annuity on these types of figures, unless they were a direct descendant of the world's oldest man/woman?
I suspect annuities may remain useful for some people who aren't in generous, taxpayer funded DB arrangements and have to face their own financial future.
Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
rockin said:
I suspect annuities may remain useful for some people who aren't in generous, taxpayer funded DB arrangements and have to face their own financial future.
Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
I think that would make sense if the returns were halfway acceptable. But based on my figures that's 2.8% and your capital is gone forever, and whilst nothing is guaranteed in the investment world, plus I'm sure there are lots of other wrinkles to take into account, I'm told that most drawdown arrangements are based on a 5% return, so you could view that as £7500, or close to double the annuity rate, whilst retaining all of the capital. Just seems such a massive and unattractive gap between the two options (and of course there are others).Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
What's the alternates....
Index linked, near 100% safe and zero maintenance.
You only need shares in a Tesco, Lookers or M&S to see huge chunk of capital gone.
And not sure as a 80 year old, I'd want to be worrying about BTL.
Personally I think I will be going for portfolio of steady eddy equities (spread the risk) and draw down.
Index linked, near 100% safe and zero maintenance.
You only need shares in a Tesco, Lookers or M&S to see huge chunk of capital gone.
And not sure as a 80 year old, I'd want to be worrying about BTL.
Personally I think I will be going for portfolio of steady eddy equities (spread the risk) and draw down.
CAPP0 said:
rockin said:
I suspect annuities may remain useful for some people who aren't in generous, taxpayer funded DB arrangements and have to face their own financial future.
Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
I think that would make sense if the returns were halfway acceptable. But based on my figures that's 2.8% and your capital is gone forever, and whilst nothing is guaranteed in the investment world, plus I'm sure there are lots of other wrinkles to take into account, I'm told that most drawdown arrangements are based on a 5% return, so you could view that as £7500, or close to double the annuity rate, whilst retaining all of the capital. Just seems such a massive and unattractive gap between the two options (and of course there are others).Buying an annuity with PART of their total pot can secure a base line income to supplement State Pension for life and then run "investment return vs life expectancy" risk with the rest.
https://finalytiq.co.uk/withdrawal-rates-in-retire...
CAPP0 said:
I think that would make sense if the returns were halfway acceptable. But based on my figures that's 2.8% and your capital is gone forever, and whilst nothing is guaranteed in the investment world, plus I'm sure there are lots of other wrinkles to take into account, I'm told that most drawdown arrangements are based on a 5% return, so you could view that as £7500, or close to double the annuity rate, whilst retaining all of the capital. Just seems such a massive and unattractive gap between the two options (and of course there are others).
I think that you don't understand the two options that you mention above.The £4,300 will increase with inflation each year, making a big difference.
A drawdown rate of 5% of the initial fund each year, increasing with inflation each year and you're at a significant risk of running out of money before you die. 3.5% would be a better ball park figure, but does depend on age & sex. Retaining all of the capital would require a lower drawdown rate.
There is a significant difference in the risks that you're exposed to with the two options.
CAPP0 said:
value is about £150k. They are estimating that if I draw this pension at normal retirement age (which means there are still several years of growth on that pot), it will yield me an amazing.......£4300 per annum!
That will probably be level term, if you go for index linked rising with inflation for the next 5 years you will get more like £3,200 and if you want your spouse to receive an income after your death it will be closer to £2,800. Hargreaves Lansdown have a very good annuity best buy table.,Compare that with my sister in law who is 5 years from retiring as a secondary school teacher, head of year. Will retire with a staggering £20k+ Which rises with inflation for the entire term!
You would need a pot of £0.94M to be comparable and over £1M to inflation proof £20k+ level over your full retirement!
Yes you can do draw down etc, but that implies risk for all or part of the capital as you are trying to grow the fund. There is no risk in the government scheme.
Its mind boggling and perhaps worth considering a move to the public sector sooner rather than later.
GingerMunky said:
That will probably be level term, if you go for index linked rising with inflation for the next 5 years you will get more like £3,200 and if you want your spouse to receive an income after your death it will be closer to £2,800. Hargreaves Lansdown have a very good annuity best buy table.,
Compare that with my sister in law who is 5 years from retiring as a secondary school teacher, head of year. Will retire with a staggering £20k+ Which rises with inflation for the entire term!
You would need a pot of £0.94M to be comparable and over £1M to inflation proof £20k+ level over your full retirement!
Yes you can do draw down etc, but that implies risk for all or part of the capital as you are trying to grow the fund. There is no risk in the government scheme.
Its mind boggling and perhaps worth considering a move to the public sector sooner rather than later.
Can you drawdown on public sector pensions?Compare that with my sister in law who is 5 years from retiring as a secondary school teacher, head of year. Will retire with a staggering £20k+ Which rises with inflation for the entire term!
You would need a pot of £0.94M to be comparable and over £1M to inflation proof £20k+ level over your full retirement!
Yes you can do draw down etc, but that implies risk for all or part of the capital as you are trying to grow the fund. There is no risk in the government scheme.
Its mind boggling and perhaps worth considering a move to the public sector sooner rather than later.
GingerMunky said:
Yes you can do draw down etc, but that implies risk for all or part of the capital as you are trying to grow the fund.
Why is erosion of the capital an issue - surely (ignoring the requirement of leaving a legacy) not running out of money, even if your capital is reduced, is considered a success? Therefore trying to grow the fund isn't necessarily an objective eitherDerek Chevalier said:
Sheepshanks said:
Derek Chevalier said:
Why?
See post above.Other than tech / IT private sector is mostly only a good idea for the top bods/ fat cats and is misery for the vast majority....
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