Pension annuity

[doorman]

I am one year past my retirement age, I deferred payment of private & state pension until my 66th birthday which is looming fast. My head is in a spin about taking an annuity from other than my pension provider. The 3 PPP's I have are all requesting me to choose who will provide the annuity, 1 in particular has guaranteed mortality rates, with options of no spouse rates or 100% spouses pension.
I would appreciate some advice as to the best options to gain the best return short & long term.
Thanks

[sidicks]

I guess 3 key points to make:

1) You should probably speak to a financial advisor

2) With interest rates so low then now is an expensive time to buy an annuity. However, if you do defer taking your annuity, even if interest rates do increase, longevity might also continue to increase so you might still end up worse off!

3) You can try some of the comparison websites for annuity rates to find out which company is offering the best rates and also to see whether the guaranteed rates you have on one policy are better than the best market rates available


Sidicks

Edited by sidicks on Monday 25th April 00:12

[Beardy10]

I am no expert but I didn't think you had to buy an annuity ? I seem to remember legislation was being brought in to that effect ? If it's possible I'd look at transferring to a SIPP and finding some suitable assets to buy.

I am not sure current interest rates should have that much of an effect on your annuity as long term rates are relatively "normal" and they obviously shouldn't be basing an annuity price for someone in their mid 60's on short term rates. Though of course they might be to increase margins.

[Welshbeef]

Correct me if I am wrong here but can you not defer choosing an annuity up until the age of 75? in whi h case IF it's affordable now to do so it's another option rather than rushing and potentially making a rush choice rather than a detailed investigation lots of help and advice and then making a choice.

That said the best offering could be available today vs the next x years...

[doorman]

Thanks folks for your help & advice, if you have any more, it would be appreciated.

[ukshooter]

Get advice! You may even be able to qualify for an enchanced annuity due to previous health history, smoking etc. There's lots of options as well as deferring for longer of course.

[sidicks]

Beardy10 said:

I am no expert but I didn't think you had to buy an annuity ? I seem to remember legislation was being brought in to that effect ? If it's possible I'd look at transferring to a SIPP and finding some suitable assets to buy.

You are correct that you do not have to take an annuity at the current time - however as I pointed out, it is possible that the terms on which you can buy an annuity may worsen rather than improve in the future.

Further, while income drawdown products are available which would allow you to take some income without locking in current annuity rates, these do involve taking investment risk, so you need some good advice.

Also these products and SIPPs tend to be expensive and therefore most efficient for large funds.

Beardy10 said:

I am not sure current interest rates should have that much of an effect on your annuity as long term rates are relatively "normal" and they obviously shouldn't be basing an annuity price for someone in their mid 60's on short term rates. Though of course they might be to increase margins

When I said "current interest rates" I was referring to the current yields on 15-20 year government bonds which form the starting point for annuity pricing. These are currently at or around 4%, which is very low by historical standards.

Sidicks

Edited by sidicks on Tuesday 26th April 08:19

[Beardy10]

I'd look at corporate bonds or blue chip stocks with a decent yield and a boring business model rather than a specific draw down product...but yes they do have risk. Though in the case of the corporate bond you should get your principal back as they have a defined maturity date unless you are unlucky...as you say though easier to do with a bigger fund.

20yr interest rates are about 4% but they have been in a range between 4 and 5% since 1998 only going outside that range briefly. We are extremely unlikely to see long term rates rise significantly even if short term rates do....there is a structural demand for long dated assets in this country (primarily from pensions).