Do annuity rates differ much?

[swee'pea99]

I have to decide what to do with my pension and I'm basically minded to take the 25% tax-free cash and buy an annuity with the remaining 75%. I'm more than half-minded to just go with my existing provider - Scottish Widows - not least because they tell me something approaching a third of the total value qualifies for a Guaranteed Annuity Rate, which in my case is something like twice their current basic rate.

The only thing, it seems to me, that could make it make sense to transfer to another provider would be if their rates were really majorly better. (Of the order of one-third better, by what my mate used to call bookie-maths.) Is that likely/possible? Or is it the case that as with savings interest rates, there tends to be some variation between different providers' offers at any given time, but really very little.

Or maybe there's a radical alternative to the 25cash/75annuity scenario that I should be thinking about?

All thoughts welcome.

 

[slowmotion]

Go to an online annuity comparison site and see what rates different providers offer. They tend to vary by quite a bit. You will have to choose if you want it inflation-proofed and/or if you want your family to keep the residual sum when you eventually croak. If you have any medical conditions, you really must tell them. You get much better annuity rates if you look like your life expectancy is limited.

I decided against an annuity, BTW. They didn't look like very good value to me.

Edit: @srw knows about this stuff.

 

[marzjennings]

I wouldn't touch most annuities with a 10ft barge pole. Hand my hard earned pension pot over to an insurance company that pockets everything if I die early, may go bankrupt at any time, and will charge me excessive fees to get access to my own cash. No chance.

 

[Chris S]

An annuity is just the interest on your own money. It's not even guaranteed anymore and you don't get access to the lump sum.

 

[Deleted User]

I would seriously consider draw down, fella I know recently looked into this.

His pot was 200k with Standard life and the Annuity they offered was 7k per year once he'd taken his 25%.

He's 58 so decided to have his lump and draw 18k per year until he's 67 (state pension age) then reduce his draw down by the 8k he'll get from the state so retaining the same yearly amount.

I think he's worked out it'll last him until mid 70's before it's gone, plus he's got the 50k to dip into for hols etc.

His missus has a decent company pension as well so it's not just his money they depend on.

I realise his remaining pot is subject to fluctuations in the stock market but he felt this was better than living on 7k per year.

Another thing with draw down is if he snuffs it Tomorrow his missus will get the lot whereas an annuity doesn't always pay out the the spouse.

 

[gbb]

Drawdown seems to be an increasingly popular option, take 25 % and the remainder stays invested / or maybe gets reinvested.
I know one former colleague who took cash plus an annuity and the annuity was virtually worthless, she either made a poor uninformed decision or was badly advised.
Another colleague looked at doing the same and it just didnt make financial sense for him.
I dont know of course how much was in their pots, it may not have been much for all I know.

 

[Gunk]

I would seriously consider draw down

Most are doing this now, plus you can reinvest your pension pot so it keeps growing

 

[Rusty Nails]

Am I correct in believing that 75% of the draw down amount is taxable as it is classed as income?

If so you would need to consider how much tax you would pay on it, especially if it pushed your income that year into a higher tax bracket.

I have about 50k in a couple of small private pension schemes and am thinking of draw down once I have done the maths.

 

[swee'pea99]

Go to an online annuity comparison site and see what rates different providers offer. The tend to vary by quite a bit. You will have to choose if you want it inflation-proofed and/or if you want your family to keep the residual sum when you eventually croak. If you have any medical conditions, you really must tell them. You get much better annuity rates if you look like your life expectancy is limited.

I decided against an annuity, BTW. They didn't look like very good value to me.

Edit: @srw knows about this stuff.

Thanks, that's very helpful. Could I ask what you decided on rather than an annuity?

I have been told by Scottish Widows that 'Partial benefits are not permitted. All benefits must be settled at the same time', and 'Drawdown is not available from this type of policy, however the value of the plan may be transferred to another policy type that does', the downside being that if I wanted to do this and take 25% as cash, the cash would come mostly or entirely from the part of the plan that carries the guaranteed annuity rate, so I'd lose that benefit.

 

[slowmotion]

Thanks, that's very helpful. Could I ask what you decided on rather than an annuity?

My private pension scheme has been with Standard Life. About a year ago, I had the choice of taking an annuity or any of the other options so I started half-heartedly looking into the matter. I was in the very fortunate position of not actually needing the pension income so I didn't rush into it. After seeing what the annuity rates were, I decided against that option and went to see a couple of investment people. They came up with some investment schemes......and then I found out their annual management fees, between 2 and 2.5% p.a. at which point I fled in horror. At the moment, my fund is still sitting with Standard Life and they are continuing to invest it but I'm not taking any income from it or making any further contributions. It's growing but not spectacularly. I suppose I'm dodging the issue at the moment. Sorry, I can't give more helpful advice. Good luck.

 

[ianrauk]

Check out Pensionwise. Its a free independent pension information service that will help you with your options.

 

[cisamcgu]

@swee'pea99

Ask your quesion HERE. it is full of knowledgeable people who are happy to answer questions such as these

 

[Notafettler]

Tell them you smoked since you were 16 and you gave it up last week.

 

[Notafettler]

I wouldn't touch most annuities with a 10ft barge pole. Hand my hard earned pension pot over to an insurance company that pockets everything if I die early, may go bankrupt at any time, and will charge me excessive fees to get access to my own cash. No chance.

You live in the US, don't talk about UK like you have some knowledge of it.
As a starter pensions are protected by the government.
Prudential regulators authority set the rules for reserves etc.
You can also leave money to family but obviously
obviously you get less.
Its quite astonishing that you can't grasp that annuities are based on average life expectancies. If you die early can't you grasp that some will die later and that maybe you.
if you take out life insurance which finishes when you are 65 do you think you should get your money back?

Feel free to talk about the US not the UK.

 

[swee'pea99]

Check out Pensionwise. Its a free independent pension information service that will help you with your options.

Thanks. I did actually try them a while back, but the man I spoke to seemed keen to 'take me through the script' rather than offer advice based on my situation. I may try them again now that I'm at least slightly better informed.

@swee'pea99

Ask your quesion HERE. it is full of knowledgeable people who are happy to answer questions such as these

Thanks. That does look good. I'll give them a go.