Pensions - Annuity Rates

[paulrockliffe]

Now I know they're st at the moment, but my partner received her latest statement this week and I was rather taken aback by the figures quoted and want to check I'm reading them right.

They detail all the contributions and then say the pot will have an estimated value of £280k in 2050 assuming wage growth at 2.5%. It then quotes an annuity amount, discounted to todays prices, of £7k per year.

40 years drawings to break even on the bet (and living to 105) seems to be a very high expectation of future average life expectancy.

Do these figures sound normal? I know it's not something to worry about too much right now, but I was rather hoping to just buy an annuity and get on with life rather than having to faff around trying to work out how best to use the money, but those rates make the annuity route pretty unattractive.

Again, just satisfying curiosity for now, am I right in thinking that an annuity wouldn't be considered for care home purposes, but cash in the bank would? What about cash left in a deferred pension pot drawn down annually?

Also, on death with an annuity the pot is gone right? So an early death using an equivalent drawn-down would potentially leave a lot of cash for the kids right?

[sidicks]

paulrockliffe said:

Now I know they're st at the moment, but my partner received her latest statement this week and I was rather taken aback by the figures quoted and want to check I'm reading them right.

They detail all the contributions and then say the pot will have an estimated value of £280k in 2050 assuming wage growth at 2.5%. It then quotes an annuity amount, discounted to todays prices, of £7k per year.

40 years drawings to break even on the bet (and living to 105) seems to be a very high expectation of future average life expectancy.

Do these figures sound normal? I know it's not something to worry about too much right now, but I was rather hoping to just buy an annuity and get on with life rather than having to faff around trying to work out how best to use the money, but those rates make the annuity route pretty unattractive.

Again, just satisfying curiosity for now, am I right in thinking that an annuity wouldn't be considered for care home purposes, but cash in the bank would? What about cash left in a deferred pension pot drawn down annually?

Also, on death with an annuity the pot is gone right? So an early death using an equivalent drawn-down would potentially leave a lot of cash for the kids right?

Presumably the annuity is increasing with RPI?

An RPI-linked annuity can cost double a flat annuity, depending on your age.

Is there also an attaching spouse's pension - this can add a further 10% to the cost, again, depending on age etc.

[sidicks]

Just re-read your initial post - ignore the above!

£280k in 2050 is broadly equivalent to around £100k in today's money (based on 3% inflation).

So you need to compare the £100k with the £7k per annum.

[GrizzlyBear]

Annuity rates are broadly linked to the gilt yield (UK gov issued bonds), hence with government policy being to ruin the yield on gilts. So poor rates are they way they want it.

[Jockman]

U.K. Government isn't issuing anymore gilts until 5th July afaik. Not sure if it's really a policy to make them weaker.

[Ginge R]

My gilt and sovereign debt fund is doing very nicely, thank you..