Pension annuities
Discussion
Would it be fair assumption that if there is any impact on the price of lifetime pension annuities resulting from this coronavirus, it will make them cheaper? Or will the market ignore the risk that we're all going to die before we reach 70, and just charge us for the increased risk of higher inflation as a result of the huge increase in government's debts?
On the mortality point specifically, I’d be surprised if insurers moved their mortality assumptions to reflect the impact of a short-term effect. And, at the moment, I don’t think they would be assuming that coronavirus is here to stay.
Edited to add: xeny - don’t you mean higher annuity prices due to lower bond yields?
Edited to add: xeny - don’t you mean higher annuity prices due to lower bond yields?
Edited by Zigster on Tuesday 26th May 08:15
hutchst said:
Why chaos?
Because years or even decades of financial planning can go out of the window and you have to either postpone retirement or accept a lower level of retirement income.This is why it is so important to de-risk your holdings in advance of such a major lifetime event.
It seems wrong to me that the amount you receive as a pension, given that you spent decades of your life dutifully paying into it, should depend on what the markets happened to be doing on your Xth birthday.
To answer the OP, I doubt it will make much difference. The virus will pass, and in the big scheme of things it has killed very few people. Actuaries will know that even if the media doesn't.
To answer the OP, I doubt it will make much difference. The virus will pass, and in the big scheme of things it has killed very few people. Actuaries will know that even if the media doesn't.
JulianPH said:
hutchst said:
Why chaos?
Because years or even decades of financial planning can go out of the window and you have to either postpone retirement or accept a lower level of retirement income.This is why it is so important to de-risk your holdings in advance of such a major lifetime event.
For those who didn't, maybe decided they'd work 5 or 10 years longer and moved back into growth, then change their mind in February, then yeah maybe not an ideal time.
I always found the pension modellers the best way to get an idea of insurer sentiment.
Put in future scenarios based on a cash sum and age, and see how much per year they'd offer based on an expected life expectancy.
Since about 14/15 the ROI numbers go really flat. Almost like they just draw down your fund with no growth at all after inflation. Not too reassuring.
And then the stochastic modellers, they become too unreliable if you include things like wars, pandemics, insurrection, economic crashes, and everything else we've seen is quite common in the last 100 years.
Since stochastics and insurers all use the actuaries, then you can be assured that whatever the modeller says is erring on a best case scenario too. Ie, the risk of a pandemic wasn't baked in.
Simpo Two said:
It seems wrong to me that the amount you receive as a pension, given that you spent decades of your life dutifully paying into it, should depend on what the markets happened to be doing on your Xth birthday.
To answer the OP, I doubt it will make much difference. The virus will pass, and in the big scheme of things it has killed very few people. Actuaries will know that even if the media doesn't.
When you're 1st contributing you can be in riskier funds, you have time to make back the shortfall. As you move nearer to retirement, you move into less volatile funds. If it's done correctly you'll be insulated to an extent.To answer the OP, I doubt it will make much difference. The virus will pass, and in the big scheme of things it has killed very few people. Actuaries will know that even if the media doesn't.
Not many people buy annuities when they 1st retire, so you'll have time for funds to recover.
Mr Whippy said:
And then the stochastic modellers, they become too unreliable if you include things like wars, pandemics, insurrection, economic crashes, and everything else we've seen is quite common in the last 100 years.
Since stochastics and insurers all use the actuaries, then you can be assured that whatever the modeller says is erring on a best case scenario too. Ie, the risk of a pandemic wasn't baked in.
I don't follow what you mean here. Can you explain please? Since stochastics and insurers all use the actuaries, then you can be assured that whatever the modeller says is erring on a best case scenario too. Ie, the risk of a pandemic wasn't baked in.
Actuaries use stochastic models to work out a best estimate outcome for markets. So they are used for things like with profits business to calculate the cost of guarantees on with profits business. They can also be used for calculating capital requirements for insurance companies. However, they wouldn't be used for pricing annuities.
Annuities are priced using a deterministic model using current available bond yields, as they are known and that's what insurance companies will actually be buying to back annuities.
Base best estimate mortality assumptions are normally based on recent mortality experience from an insurance company's annuity book, possibly supplemented with other publicly available experience data. There will be an impact from CV19 but I would expect it to be outweighed by experience from previous years.
Future mortality improvements will be where CV19 come into things most as we don't know how long it is here for or what impact it will have on us all long term. The Continuous Mortality Investigation (part of the Institute and Faculty of Actuaries) are putting out mortality monitoring on a weekly basis just now. I will be looking into this more in the near future.
The impact on the annuitant population may also differ from the impact on the general population due to socioeconomic differences. This means CV19 may not affect future mortality improvements for annuitants by as much as the general population. But I don't know just now as I haven't looked at any data.
hutchst said:
Would it be fair assumption that if there is any impact on the price of lifetime pension annuities resulting from this coronavirus, it will make them cheaper? Or will the market ignore the risk that we're all going to die before we reach 70, and just charge us for the increased risk of higher inflation as a result of the huge increase in government's debts?
HL have some historical data on their site which might be usefulhttps://www.hl.co.uk/retirement/annuities/best-buy...
Mr Whippy said:
Given most people run with defaults and are entirely passive, I'd be surprised if anyone hadn't been automatically de-risked by their provider.
.
You need to be clear that you are happy with their "derisking" approach - I've seen at least one provider shift from equities into long-dated index-linked gilts. .
Derek Chevalier said:
Not clear to me either. 
Nor me as I only retired last year and the current crisis doesn’t make a lot of difference given I’m likely invested in the markets for many years (hopefully). I’m guessing there aren’t huge amounts of people buying annuities given the rates over the last few years.craig1912 said:
Derek Chevalier said:
Not clear to me either.
Nor me as I only retired last year and the current crisis doesn’t make a lot of difference given I’m likely invested in the markets for many years (hopefully). I’m guessing there aren’t huge amounts of people buying annuities given the rates over the last few years.If you have just retired - presumably you have some cash assets to draw on whilst the markets recover? Or are you watching a DC pot decline in it's ability to fuel your lifestyle? Doesn't sound like it, so you must have done something to de-risk your finances for this year?
I would agree that one should have a somewhat de-risked portfolio as one approaches that point....and ideally one also has an eye on the future, keeping some element of 'risky' investment (I hope to be "retired" for a good 20-40 years!) to enable the growth that will pay for future luxury items etc!
Personally, this current crisis has perhaps delayed my 'retirement', but mostly because the travel was a ball-ache & I'm quite enjoying the new work world where I am!!
Might manage another year before jacking it all in.....
Certainly having the market dips now (in my opinion!) *reduces* the "sequencing of returns" risk to me - that can otherwise painfully and negatively impact those of us mostly using DC pension schemes.
mikeiow said:
craig1912 said:
Derek Chevalier said:
Not clear to me either.
Nor me as I only retired last year and the current crisis doesn’t make a lot of difference given I’m likely invested in the markets for many years (hopefully). I’m guessing there aren’t huge amounts of people buying annuities given the rates over the last few years.If you have just retired - presumably you have some cash assets to draw on whilst the markets recover? Or are you watching a DC pot decline in it's ability to fuel your lifestyle? Doesn't sound like it, so you must have done something to de-risk your finances for this year?
I would agree that one should have a somewhat de-risked portfolio as one approaches that point....and ideally one also has an eye on the future, keeping some element of 'risky' investment (I hope to be "retired" for a good 20-40 years!) to enable the growth that will pay for future luxury items etc!
Personally, this current crisis has perhaps delayed my 'retirement', but mostly because the travel was a ball-ache & I'm quite enjoying the new work world where I am!!
Might manage another year before jacking it all in.....
Certainly having the market dips now (in my opinion!) *reduces* the "sequencing of returns" risk to me - that can otherwise painfully and negatively impact those of us mostly using DC pension schemes.
Derek Chevalier said:
mikeiow said:
craig1912 said:
Derek Chevalier said:
Not clear to me either.
Nor me as I only retired last year and the current crisis doesn’t make a lot of difference given I’m likely invested in the markets for many years (hopefully). I’m guessing there aren’t huge amounts of people buying annuities given the rates over the last few years.If you have just retired - presumably you have some cash assets to draw on whilst the markets recover? Or are you watching a DC pot decline in it's ability to fuel your lifestyle? Doesn't sound like it, so you must have done something to de-risk your finances for this year?
I would agree that one should have a somewhat de-risked portfolio as one approaches that point....and ideally one also has an eye on the future, keeping some element of 'risky' investment (I hope to be "retired" for a good 20-40 years!) to enable the growth that will pay for future luxury items etc!
Personally, this current crisis has perhaps delayed my 'retirement', but mostly because the travel was a ball-ache & I'm quite enjoying the new work world where I am!!
Might manage another year before jacking it all in.....
Certainly having the market dips now (in my opinion!) *reduces* the "sequencing of returns" risk to me - that can otherwise painfully and negatively impact those of us mostly using DC pension schemes.
My point was that at point of retirement, one should have access to some funds (might be 12-36 years of income depending on personal views of risk!) in case of falls like we saw earlier in the year.
Many pension plans have a 'glide path' down to lower risk portfolios (& yes, obviously I mean less equity exposure there!) - my personal view was that made little sense when I need to be in the markets for 20-40 years.....but that is a conventional approach
Craig, did you have cash funds to take you past the dip we have seen this year (& indeed may see over the next 12 months - who knows!)?
Actively curious in how people recently retired are managing that!
Brads67 said:
Does anyone still buy an Annuity ?
I checked just for laughs and 1 Million buys you roughly 35k a year. Sounds pretty poor to me given that that would leave the Million virtually untouched over the lifetime ( in a decent market)
Well that was my thought too. When I think of annuities I think of Monopoly and Captain Mainwaring.I checked just for laughs and 1 Million buys you roughly 35k a year. Sounds pretty poor to me given that that would leave the Million virtually untouched over the lifetime ( in a decent market)
mikeiow said:
Craig, did you have cash funds to take you past the dip we have seen this year (& indeed may see over the next 12 months - who knows!)?
Actively curious in how people recently retired are managing that!
I'm retired and live on investment proceeds. The total pot went down this year, but at last tally was only 6% down, and it is under very little stress from my drawingsActively curious in how people recently retired are managing that!
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