Annuities: Back from the dead?
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- Опубліковано 4 лип 2024
- Annuities have been out of favour for over a decade, but recent events have brought them very much back to the fore. But should you care?
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Chapters:
00:00 Welcome
00:30 Intro
00:46 What is an annuity?
01:31 Factors in annuity rates
03:57 The relationship between gilts prices and yields
06:12 Choosing an annuity for yourself
07:23 Resolution
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What's your take on annuities?
Thanks Pete, Factual and to the point as always. very much appreciated. may see what pot size I will have before deciding on the right course of action.
Thanks Pete for all the great advice Ive told my adviser hes hopeless and I now take all my advice from you free online 👍
Thank you for trying to clear my financial ignorance...
Very timely ! I wasn't aware of the moneyhelper site, that's really useful :)
Glad it was helpful, Chris!
Thanks Pete, just turned 60 and need to start thinking about my future pension plans... great channel.
Glad it is helpful!
Really useful information
Glad it was helpful, Narinder - thanks for watching!
Thanks Pete. Definitely food for thought. Personally I intend to live off dividends from companies in a variety of sectors and geographical regions. Average dividend yield of my portfolio is 4.2%. I will also have a defined benefit pension to meet basic needs.
Good stuff - that’s a great position to be in!
I have been thinking about fixed term annuities since watching a video that you posted some time ago. To retire early, I am considering buying a 7 yr fixed term annuity with some of my personal pension savings, leaving my deferred DB scheme pension until age 65, getting state pension at age 67 and ISA returns will top up a good portion the difference when the annuity income runs out. Still very much going through the thought process, as it may be a crazy plan🤣
I’m thinking of the same thing - bridging early retirement to my state pension and then using my SIPP and ISA’s for everything else
I think you’re thinking through the plan carefully and correctly Christine. The key to good retirement income planning is making sure you have the income you need at the right time OR the capital draw from. Temporary annuities are definitely worth considering…
One thing I can't get past with annuities, is that my family has all been short-lived. I know that past performance is no guarantee of future events, and I've already lived 20 years longer than my father managed, and 4 more than my mother, and that I seem to be reasonably healthy - but so was mum until 6 weeks before she died. So, the various drawdown options available since 2015 are definitely the way to go for me. Thanks for all the advice, though - I'm much happier about my SIPP since joining your channel.
Glad it’s been helpful, Pam! Here’s hoping for a long and healthy life, breaking the pattern!
What should i do Draw Down or Annuity? Im 57 yrs this video is very helpful thanks
Wait for next week’s video!
Thanks Pete - another topical and clearly explained video. You mentioned that annuities might suit someone whose basic needs weren't met by their other pension provision. Feels like this fits with your cash ladder ideas - de-risking what you can't afford to do without. Does that make sense, or have I got the wrong end of the stick?
I’d say that’s exactly right, Jon! 👍🏻
Thanks Pete. Do you think this info is relevant for the NZ or Aussie market....
Prudential has an annuity with some downside protection of up to 20% and some awesome caps. FlexGuard is what it’s called.
Annuities are insurance , and expensive if you die early.
I'm far more concerned with providing for my family when I'm gone, so I'd rather have drawdown, live off dividends etc and leave a good amounts when I die.
If I was single though I'd go for it right now as part of my pension plan.
Those are exactly the right considerations, Nigel. Everyone will have different priorities and I’m glad that you’ve thought yours through carefully…
Hi Pete, great video! This has inspired me to consider an annuity as rates have got better.
A quick question please.. my pension advisor has told me that by buying a fixed term annuity of say 200k from my uncrystalised part of my pension, 50k of this is paid to me as tax free. So effectively the annuity is costing £150k. Is this correct? One company that quoted for me said the annuity can either come from the whole amount of what is crystallised or partly from the uncrystalised portion ( 25% of this tax free). I don't want to risk loosing the tax free element.
Now subscribed and loving the content. :)
Good morning Pete! I just want to say thank you for helping and inspiring me to grasp hold of my future. With the help of your videos and excellent book and podcasts with Roger, I’ve just set up my pension and my first order completed yesterday! I feel very excited and empowered and have taken your advice about laying sound foundations. I’m 47 and self employed earning a small income so needless to say I wish I’d have found you earlier, but better late than never! You really do make a positive difference to people’s lives. Look forward to your next instalment.
Defo better late than never Louise! We’re the same age, and there’s plenty of life left in us yet, God willing! So we’ll done for taking action now. 60-year old Louise will thank you!
@@MeaningfulMoney Thank you for your encouragement. I’ve made a gain on my first order! It’s time to knuckle down now. Wishing you a long and happy life.
Great episode. It's very good idea to build a floor income in ones retirement plan to cover basic needs no matter what. I think profesor Pfau suggested anuity as crucial part of retirement plan since old 4% rule most likely does no longer pass the test in long term drawdown.
Is anuity usualy inflation linked? And if yes, is there a limit to it? Say, inflation goes wild up to 20%, would insurance company still increrase regular income by the rate of inflation? What if insurance company goes bust? Who pays anuity then? What if you move abroad? Will anuity still be paid out?
You can buy inflation linked annuities with different options like RPI, LPI or a fixed percentage. If you move abroad the annuity will continue to pay out, though you’ll probably need to retain your UK bank account. There is good protection for annuities under the FSCS.
For those still building up a retirement pot, this may be a good time to ‘buy the dip’ in gilts.
That is, if you trust the UK gov not to default on debt in the long run
My financial adviser got me a quote 4 months ago then did another two weeks ago, based on the same figures - it was 40% higher than before.
He was so surprised by the increase he ran the figures 3 times!
We’re in exceptional times…
Maybe you should do an update on Annuities as UK interest rates are still rising. ! They looking better for anyone with £200,000 or above!
Hi Pete
Thanks for great topic, I'm 64 and just approaching my guanteed annuity term which is in March 2023 been offered by my pension provider £7,500 a year on my £120000 pot , is this good or worth shopping around, thanks
I've twice deferred my Prudential With Profits Annuity Contract in the hope of the 15 year gilt yield rising - and over these last few months this has indeed happened in quite a spectacular way, so much so that I was thinking of obtaining a final quote and taking the annuity or even going into drawdown........but was staggered to find that the Prudential devalued my pension pot by almost £20,000 overnight! They say it's in the interest of 'fairness to other policy holders'?
So it seems that with this sort of Section 226 contract it's impossible for me to benefit from rising gilt yields.....and if I was to move into drawdown then I'd receive considerably less due to the reduced pot. Can this be fair to 'me'?
Sounds to me like you’re in a With Profits fund and they’re reducing your terminal bonus (reducing your fund value).
I can understand the frustration…
Hi Pete,Is it worth doing a 'Purchased Life Annuity' meaning using savings rather than part of my pension? im currently 53 thinking of doing this @55 allowing me to leave my pension to mature. Additionally a PLA has better tax benefits than a traditional annuity.
I see returns on Annuities are about 6% at the moment, that’s a level one, not indexed linked or enhanced due to health considerations. The investment systems are so volatile right now, you need to take a deep breath to stay in it or have the stomach for it. Annuities probably need considering now as part of your retirement income. I worked out the other day a level Lifetime Annuity would take me 17 years to get my cash back.
Agree with all that, Ian!
I’ve got a question say annuities rates start getting really interesting say 6-7% or higher you’ve just hit 55 but you’re not planning on retirement for another 5-10 years. Could you buy an annuity inside your pension to lock in the rate but not crystallise it so you could keep making contributions not have a pension tax relief be affected? If yes would it be worth doing?
I don’t believe there’s a way to do this. Would be very handy if you could - best of all worlds!
Hi Pete, I agree annuities are more attractive lately but I can only see them as being useful to create a safety net within a range of DB, state pension and drawdown portfolio. I'd never just reply on an annuity on its own as the risk of it being undermined by high inflation is too great for me. What if I live for another 30 years and there has been "normal inflation" over that period?
You can buy inflation linked annuities - I don’t like having to hand over all my cash on day 1 and then hope I don’t pop my clogs, leaving nothing for the kids!
David is right, Annabella. You can buy indexed (inflation-linked) annuities which will minimise the impact of inflation.
Wouldn't inflation linked annuities pay less from the off? Surely you never get a free meal, it all comes out in the wash?
@@annabellaandrewkingdon7972 Yes - inflation-linked annuities are more expensive, but you are paying for certainty
But are they indexed to inflation? Isn't that the reason not to buy an annuity?
They can be, yes. You have that option at outset.
Thanks Pete, my DB pension rules dictate that I must buy an annuity with any remaining funds after the 25% tax free cash element has been covered by my associated voluntary contributions pot. I used to resent this, but recent events have made it look a much better prospect. When do you anticipate that annuity rates will peak (next year?) and begin to drop again, as timing the purchase appears to be significant?
Hi Mortelski. It’s not an annuity, as such, but a Scheme Pension, though it amounts to the same thing. The amount of income will be set by the scheme rules, not by annuity rates, if it really is a DB scheme. Unless I’m missing something…
@@MeaningfulMoney I will illustrate using round numbers to hopefully make things clearer: Projected DB pension = £20k. So could take the full £20k as pension, or take £100k TFLS and commuted residual pension of £15k. But also have AVC pot of £200k within the same scheme. £100k of that AVC pot can be used to provide the £100k TFLS for the DB pension, without having to reduce the £20k DB income to £15k. That leaves £100k remaining in the AVC pot. £25k of which could be taken as a further TFLS, but then the remaining £75k must (under the scheme rules) be used to buy an annuity. I was assuming that you could shop around for the best annuity rate with the £75k at this stage. But are you saying that even that would stay within the scheme, and that they would (in effect) provide the annuity income themselves?
It's not a DB scheme if these are the rules, it's a DC one.
@@tancreddehauteville764 It is a DB scheme, but with a connected facility to pay in AVC's. The AVC's can then be used to fund the maximum 25% TFLS, without having to reduce the DB pension element payable. The mandatory annuity element is only applied to any residual AVC pot left after all of the 25% TFLS has been taken. Sorry this is so complicated. My question was only really about likely annuity rate movements during 2023.
Pete do you think Rishi becoming our PM will be a positive move for the U.K? Or do you think only time will tell?
The latter, Kevin. But it’s hard to imagine anything worse than the last few weeka
Can I lock in an annuity rate now earlier than 55 to pay out at a later date?
I don’t think so, Justin. Would be handy if you could…
Thanks for the video, set me thinking. Im in drawdown with a reasonable pot. Could I use some of it to get an annuity to reduce or even replace my drawdown per month? Is that allowed cos most seem to discuss it as an option to take at the start of retrement or as a full alternative
Yes, you can still do that, even after you’re in drawdown…
@@MeaningfulMoney wow quick reply! Thanks. What about buying it with money outside my sipp, is that allowed given Im drawing down?
Annuities become worthwhile once you are at least 65, not before, and ideally at age 70. A good strategy is to get your 25% tax free element and live on that, plus drawing up to the tax free personal allowance for as long as possible, then buying an annuity thereafter.
What's the difference with a USA annuity? I thought in principle they are more or less the same.
Usually they call an annuity a kind of deferred thing with various options. For us, annuities are usually immediate.
no one interact with this page because it’s clearly a scam
@MeaningfulMoney US has all kinds of annuities and the are the same concept as the UK. Insurance product.
so if i moved, took out an annuity and moved back would i keep the annuity rate? if so how do we find the best areas?
Clever thinking.
Take up smoking and drinking hard liquor too...
Good question, Lee. I guess you could search ONS data for areas with the worst life expectancy?! *Might* not be worth it by the time you’ve paid moving costs, legal fees and stamp duty. Unless you just grab an AirBNB for a while!
@@MeaningfulMoney i rent anyway so less hassle and cost to move. i realised i dislike owning a few years back. cheers
Hi im 60, ive put 42 thousand pounds into a annuity they have quoted 2.400 pounds per year. Would appreciate your thoughts Thank you.
Presume that’s a level annuity? And I’m guessing single life, so nothing gets paid to a spouse? That’s a little over 5% so I’d say it’s about right. Hopefully you’ve looked at the Gov.uk annuity comparison site to see how your provider compares with others?
@@MeaningfulMoney Yes single .Thank you.
Pete - it seems someone has “lifted” your logo and replying to comments on your page - see reply to my earlier comment
Happens all the time on UA-cam, Peter. So annoying. Thanks for raising it though. Best thing you can do is report those doing it. You’ll always know the official replies by the fact that the channel name has a kind of bluish-grey bubble around it
I wouldn’t touch annuities with a barge pole. I think they are for people who don’t like the idea of managing their own finances or tailoring their lifestyle to their pension pots.
Annuities only make the provider rich- a bit like insurance!
They ARE insurance really. It’s good that we have a choice now - each to their own…
OK, Question - I have a DB pension that at retirement at 67 will pay me £13,500 per year. The CETV currently of the pension is approx £160,000. I am 47 with diabetes and recently had a heart attack and have had a defibrilator fitted. An annuity (from age 60) will pay me an indicative £15,000 per annum. this also provides for 50% of unpaid pension in first 10 years to go to my estate. However I cannot get an FCA approved Financial Advisor to take the gamble and advise me to transfer the money to this annuity. My only real option seems to be to wait till I am 57 and start to take my DB pension (reducing it to £6k per annum). I am a reasonably intelligent person, and am basing my decision on what I would consider a balanced and proportionate understanding of the pitfalls of cashing in a DB pension. I would be keen on anyone's thoughts. I am considering writing to my MP to see what I can do.
CETV values are dropping fast due to the long term gilt rates You have plenty of time as you can not normally get any pension until your 57 I would request a CETV value every year you are allowed One free one every 12 month Two bits of advice I’d register with a FA ( they charge a bit !!!) that specialises with DB transfers as you only have 3 months to complete the transfer there is a lot of hassle I was trying to transfer one last year and missed the 3 month deadline I’m probably just going to take the DB pension now early due the all the hassle The other issue is The Government might put so many barriers up to stop DB transfers that they won’t be allowed for ever I had a similar amount of money in a DC pension took 2 e mails 2 weeks with no cost to transfer to a SIPP but obviously I can’t be trusted to transfer a DB pension it’s a joke in my opinion
@@davidpearson243 Thanks for taking the time to respond David. I feel just so frustrated that I cant fid an FA that can help with this. You are right regarding the CEV Transfer each year and so I have diarised this now. I am in such a lucky position to even have this dilemma, however with an expected life expectancy cut short by quite a bit, I am being forced to take a pension early at reduced pay-out and with no way of securing any remaining money into my estate. If anyone has had any success with this kind of transfer based on medical grounds, I would be keen to discuss.
@@kevincowan2639 yes, I constantly have to report these spam messages.
Cash is trash, annuities are one way bets for the insurers. Only stocks and shares keep value in the long term.
I once had a client who had had two strokes and was paralysed down one side pay £100,000 for an annuity that started at about £1,500 a month. 15+ years later she was still going and it was paying something daft like £4k per month. Some people really get one over on the annuity companies by refusing to die - not always one-way bets...
Can't I simply say I'm a smoker to get a better rate and then give up smoking?
Ponzi scheme and I am also a UK qualified advisor
I’d be interested to know how you make that comparison…
Bonds are the vehicle inside annuities, government's run permanent deficits so each year they pay off yesterdays bond investors with more bonds to cover deficits and interest on theses bonds,debt to pay off debt a classic Ponzi scheme and a annuity is essentially a bond a cash product.
So they set interest rates lower so they can afford the debt mountain until one day they hit a low rate and nobody wants to own government debt then it blows up and starts again.
I see it as very short sighted to talk about annuities when the wider picture tells you a change is talking place.