Do annuity rates differ much?

[Chris S]

The amount you receive is guaranteed for life.

Only with a fixed annuity. And they will get eaten away by inflation.

The amount you receive will always be greater than savings rates.

That's not true.

 

[Notafettler]

That's not true.

I can assume from this you are going to put it in a savings account, which according to you pays more, which one?
You have already shown how much your lack of knowledge you have of annuities, don't make it worse.
As an aside are you still denying that annuities aren't a guaranteed payment for life?

 

[MntnMan62]

Not strictly correct. The rate is set by the investments made at the point of purchase. Those investment are required to be low risk government bonds, company bonds (very good credit risk) etc. Nowadays infrastructure purchases by the insurance company (low risk) and in the case of legal and general the returns on social housing (which are also considered low risk). The last 2 are not affected by interest rates. Bonds by contrast are. The bonds which previously existed will fetch a higher price when bought if interest rates have gone down and vice versa. Hence the return will fall/rise and there would be fall/rise in the price at redemption.
Bonds are proving a problem for the insurance companies as people live longer than the bonds last. So the replacement bonds may not match the returns on the original bonds.
Infrastructure and housing rent will at least keep up with inflation. As will interest rates....in normal markets!!

I understand how markets work. Of course they go up and down. Duh. And I understand how different investements work and why. You don't need to explain to me the basics of how and why bond values can fluxuate. I've worked in wealth management advising clients for over 30 years. And, how is the the point of purchase different from the date the annuity is set? When you buy an annuity the rate is set at the time it is purchased. You just repeated what I said. Annuities aren't low risk because someone like the government is dictating they be low risk. They are low risk because of the nature of the investment. By their very nature where you are guaranteed a specific payout for the life of the annuity, that is what makes it low risk. No other reason. And your focus on bonds as the investments which are supposed to back up the annuities is also incorrect. Insurance companies invest in lots of things to support the annuities they underwrite. Not just bonds. They lend money to home buyers and commercial property buyers. They buy and trade stocks. And yes, they buy bonds. People living "longer than bonds last" has nothing to do with annuities. Annuities are purely based upon two things. Interest rates at the time they are purchases/rates set, and the life expectancy of the person purchasing the annuity using actuarial tables. That's it. Reading your post, I don't quite get the point you are trying to make.

 

[Chris S]

You have already shown how much your lack of knowledge you have of annuities, don't make it worse.
As an aside are you still denying that annuities aren't a guaranteed payment for life?

Er, no.

The amount you receive is guaranteed for life.

Only with a fixed annuity. And they will get eaten away by inflation.

 

[Notafettler]

I understand how markets work. Of course they go up and down. Duh. And I understand how different investements work and why. You don't need to explain to me the basics of how and why bond values can fluxuate. I've worked in wealth management advising clients for over 30 years. And, how is the the point of purchase different from the date the annuity is set? When you buy an annuity the rate is set at the time it is purchased. You just repeated what I said. Annuities aren't low risk because someone like the government is dictating they be low risk. They are low risk because of the nature of the investment. By their very nature where you are guaranteed a specific payout for the life of the annuity, that is what makes it low risk. No other reason. And your focus on bonds as the investments which are supposed to back up the annuities is also incorrect. Insurance companies invest in lots of things to support the annuities they underwrite. Not just bonds. They lend money to home buyers and commercial property buyers. They buy and trade stocks. And yes, they buy bonds. People living "longer than bonds last" has nothing to do with annuities. Annuities are purely based upon two things. Interest rates at the time they are purchases/rates set, and the life expectancy of the person purchasing the annuity using actuarial tables. That's it. Reading your post, I don't quite get the point you are trying to make.

I don't quite get your point either I never said purely bonds. The government (PRA) does expect them to be low risk.

 

[MntnMan62]

I can assume from this you are going to put it in a savings account, which according to you pays more, which one?
You have already shown how much your lack of knowledge you have of annuities, don't make it worse.
As an aside are you still denying that annuities aren't a guaranteed payment for life?

Why are you assuming he would put the money in a savings account? Making assumptions is always going to ruin any argument you make.

 

[Once a Wheeler]

Thoroughly recommend this chap:
https://www.williamburrows.com/
I consulted him, had a useful meaningful conversation, was not pressured into anything, and felt supported in making my own decision rather than pressured into following someone else's advice.

 

[swee'pea99]

Ok, so...first off, thanks for the help thus far - I know a lot more than before I posted. A low bar, admittedly, but still...

I'm now leaning much more toward this drawdown business - not just for the possibly better returns, the flexibility also sounds good for my situation. As I understand it, they basically put my pension pot (say £100k) into an investment fund, which is invested in the stock market. I can then take out (pretty much - and putting tax to one side for the mo) what I want, when I want - but it comes out of that investment fund. So if I take out £10k, I have £90k left in my fund. Except that the fund will have been invested in the meantime. It may have grown to £110k - so I get my £10k out, but I still have a fund worth £100k. By the same token, it may have performed badly, falling by 10%, so between that & the £10k I took out, I now have a fund worth only £80k. And so on. With the significant difference vs annuities that when I croak, any value left in my fund goes to my missus, not the company that issued my annuity. Right so far?

Assuming so, would I be right in thinking that in deciding which drawdown plan to buy, I have to think about two factors: the management charges (in the case of my current provider, 0.3%), and the likely investment performance of the underlying fund? And is that where an IFA comes in? Applying his/her knowledge of the market to select (or at least recommend) the drawdown plan that best reflects my appetite for risk vs reward?

Thanks in anticipation for any explanations. BTW, I will also be browsing the MSE forums, as advised; but I do find that as with car mechanics or DIY, I often get replies better pitched to my understanding hereabouts than those from more expert experts on more specialised forums, which I often find baffling/complex. CC people speak my language!

 

[sheddy]

Has anyone taken a fixed term annuity - reinvest the balance after 5, 10 or more years ?
https://www.moneyadviceservice.org.uk/en/articles/fixed-term-annuities

 

[Notafettler]

Why are you assuming he would put the money in a savings account? Making assumptions is always going to ruin any argument you make.

It was a question posed as a question. He is saying what a rip off they are when they are not. He is also not coming with alternatives. I am fond of alternatives

 

[Notafettler]

No, looks like an interesting option. I will note it down for future reference

 

[Brads]

Annuity has to be the worst value ever. I can't think of any reason to go that route nowadays.

Well invested SIPP drawdown is by far a better option.

Vanguard have a drawdown option now, fee is capped at £375 or something.

I have mine with Intelligent Money, full financial service (private client manager) but no requirement for an IFA or their money for nothing fees.

IM's fees are really good and come down for funds over a million. They have a minimum investment of 100k but I have a code to get round that when setting up a fund.

Well managed funds will make you a very good return. And if you keep in mind that it's an investment, not trading, and actually leave it alone, then market movement will not have a huge affect over the years.

 

[mikeIow]

Another vote for Intelligent Money: visit Pistonheads finance sub-forum & have a browse of the sticky thread at the top....perhaps skim the first couple of pages and perhaps the latest one or two. A decent bunch of people there.

Also perhaps visit the MoneySavingExpert retirement sub-forum: a fair few knowledgable folk there too.

Certainly there is the option to use an IFA. Note, they don’t magically make funds ‘grow faster’ than you could yourself - steer clear if they claim that! They will likely take anything from about 0.5%-upwards to manage your finances for you. That will be in addition to any fund/platform fees.

 

[slowmotion]

I looked into annuities for my private pension pot 18 months ago. Here were the numbers......

I have a lump sum of £X:

Option A. I give all of £X to the annuity people, there is no increase for inflation, and my family (or my exotic mistresses) get nothing when I croak. The annuity people trouser the lot.

Option B. All of the above but the payments to me, while alive, increase by 3% per year.

Option C. The payments are increased by 3% pa per year and my family (and Fifi Trixibelle and her friends) get to fight over the residue of my initial lump sum.

Here is what I would get per year....
Option A: 2.9% of X
Option B: 2.0% of X
Option C: 1.6% of X

If that isn't a sh*tty deal, I don't know what is. The only thing that an annuity will bring you is certainty. It looks like the wrong sort to me.

 

[MntnMan62]

I don't quite get your point either I never said purely bonds. The government (PRA) does expect them to be low risk.

Then why would you go on and on about how the problem for insurance companies is that people are outliving the bonds, in a discussion about annuities?