Are annuities back on the table

M

Montbretia

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Hi,

Wife approaching 70 with a pension pot of 200k (after 25% tax free sum). Presumed ARF was the way to go but an annuity quote of 10k per annum (with 50% to surviving spouse upon death) got us thinking. It's equivalent to the 5% yearly take from an ARF, obviously without the possible increasing value of the ARF going forward, also with inflation decreasing the spending value of the annuity. On the other hand, it takes away the various charges on the ARF which could be 1.5% annually from what we've read. Thoughts welcome.
 
ARF v Annuity is an important decision. I wrote an article outlining the important distinctions between the two here.

There are many ways to set up an annuity. One of which is to build inflation protection into the income payments from the outset. The benefit of this very much depends on the numbers as it reduces the initial income amount and it takes a reasonable length of time to catch up to the non-inflation protected amount. When I've run models comparing the two most clients feel that it isn't worth it. A bird in the hand etc...

Rates vary by provider quite a bit at the moment and most are willing to improve on quotes provided to them. Even assuming that you are also approaching 70 you would likely get a better rate than 5% [including that 50% surviving spouse option] by shopping around the different providers.

The first thing you would both need to do is weigh up the first question and decide whether an Annuity or an ARF is most suitable option for you long term. If you decide on annuity then you should get quotes to compare.

Kevin
www.thepensionstore.ie
 
It’s little-noticed but in the last two years annuities have become much better value, and life and income protection insurance have come down a lot. This is all due to the big jump in interest rates.
Montbretia said:
Presumed ARF was the way to go but an annuity quote of 10k per annum (with 50% to surviving spouse upon death) got us thinking. It's equivalent to the 5% yearly take from an ARF, obviously without the possible increasing value of the ARF going forward, also with inflation decreasing the spending value of the annuity.
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I would do a bit of both. Take advantage of the good annuity rates which or may not last, and retain some of the potential upside with an ARF.
 
Dr Strangelove said:
It’s little-noticed but in the last two years annuities have become much better value, and life and income protection insurance have come down a lot. This is all due to the big jump in interest rates.

I would do a bit of both. Take advantage of the good annuity rates which or may not last, and retain some of the potential upside with an ARF.
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Got a quote of 5.372% for Level (non-inflating) annuity with spouses 50% pension and 5-year guarantee which seems decent and will probably go with Annuity/ARF split.
 
Montbretia said:
Got a quote of 5.372% for Level (non-inflating) annuity with spouses 50% pension and 5-year guarantee which seems decent and will probably go with Annuity/ARF split.
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This was my experience.

I just bought an annuity and what I learnt.

I am age 59 and have worked most of my life in financial services but never in pensions. It was a topic that seemed very complex. The pension scheme administrators visited our company each year. Listening to them speak about the investment landscape only made it sound more difficult to grasp...
www.askaboutmoney.com
 
They are definitely an option and should always be looked at when maturing a policy, with the pros and cons of both explored.

Had a case recently of a client with an 11.1% guaranteed annuity! A no brainer for that one!
 
Steven Barrett said:
Had a case recently of a client with an 11.1% guaranteed annuity!
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The really important thing to remember if you have one of these contracts (they're generally RACs) along with and other personal pensions/PRSAs, is that you're allowed by Revenue to take more than the 25% TFC (ie. on aggregate total value) from the other contracts so that you can maximise the 11.1% on the full value of the policy that it apples to.


Gerard

www.prsa.ie
 
Montbretia said:
and 5-year guarantee which seems decent
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I think that’s a bit of a gimmick. You’re unlikely to pass away within five years. I would see if you can get a better rate in exchange for guarantee. These prices are negotiable.

Otherwise your approach seems great. Good luck!
 
Steven Barrett said:
They are definitely an option and should always be looked at when maturing a policy, with the pros and cons of both explored.

Had a case recently of a client with an 11.1% guaranteed annuity! A no brainer for that one!
Click to expand...

Wow! At that rate, I'd be very tempted to keep the lump sum in the pot. Mind you, I can't help thinking I'd be wondering about the actuarial opinion on my longevity.
 
Montbretia said:
Got a quote of 5.372% for Level (non-inflating) annuity with spouses 50% pension and 5-year guarantee which seems decent and will probably go with Annuity/ARF split.
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If you are considering a guarantee period ask for a quote for 10 years. You might be surprised how little it costs.
 
Dr Strangelove said:
I think that’s a bit of a gimmick. You’re unlikely to pass away within five years. I would see if you can get a better rate in exchange for guarantee. These prices are negotiable.

Otherwise your approach seems great. Good luck!
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Last time I looked (a few years back) the cost of the 5 year guarantee was very little. But even so, is that cost worth paying?
 
Personally, an annuity is basically insuring against the cost of being alive.

The thought of dropping dead the day after purchasing an annuity doesn’t bother me in and of it itself.

If I’m not alive I don’t cost anything. I’d rather have more money in the state of the world when I’m alive.

But others may think differently.
 
In the context of what the OP is thinking of doing I'd estimate that the annuity would be enhanced by circa €2 per month by not having the 5 year guarantee.
 
Would there be anyway to list the current annuity rates (even rate spreads) being offered by the various providers, similar to the deposit rates. Fees would be good to get too. Very hard to get any useful comparatives for pensions without going through the process each time of getting quotes etc.
 
Rasputin said:
Would there be anyway to list the current annuity rates (even rate spreads) being offered by the various providers, similar to the deposit rates. Fees would be good to get too. Very hard to get any useful comparatives for pensions without going through the process each time of getting quotes etc.
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My recollection is that there are a handful of annuity calculators accessible (and posted here on Askaboutmoney in other threads) without going through an actual quotation process but they're probably just indicative and an actual quote may depend on more detailed personal info and an actuarial assessment of same.
 
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