Experiences of buying an annuity
Discussion
I recently cashed in my SIPP for an annuity and thought I’d post here about the experience in case it is useful for others.
I decided to buy an annuity as I fancied having a small amount of guaranteed income to supplement other income from isas and other investments as I approach retirement (I am 58). I am self employed and also liked the fact that buying an annuity meant I could still make employer contributions to my SIPP (or actually a new SIPP as the old one was closed in the annuity process) going forward.
I spoke to several annuity brokers and an IFA. For whatever reason, the best rate, by some margin (about 3%) was with Hargreaves Lansdown.
My SIPP was with II so first step was to sell everything to cash. I was lucky with the timing with hindsight. The fund then got transferred to Just, which happened early Feb. The annuity started last week so the whole process took about 13 weeks. Just started the annuity from the date they received the funds which was a surprise but a pleasant one so last week I received the lump sum portion and a payment from 7 Feb.
I went for an RPI linked annuity with a 50% spouse benefit and a 20 year guarantee period. The guarantee was cheap relative to its value (a good bit of advice from the IFA although for whatever reason he couldn’t compete with HLs rate).
One of the advantages of the HL annuity engine is that the quotes are guaranteed for a period - usually 14 days. So in these volatile periods one can get quotes every day for a period and then pick the best rate. The difference between the best and worst rate during the period I was buying was around £600 or 2%. A meaningful difference.
All up if one is a confident self directed investor the HL process works pretty well although I can see why others may prefer the security of an IFA.
Happy to answer further questions if any.
I decided to buy an annuity as I fancied having a small amount of guaranteed income to supplement other income from isas and other investments as I approach retirement (I am 58). I am self employed and also liked the fact that buying an annuity meant I could still make employer contributions to my SIPP (or actually a new SIPP as the old one was closed in the annuity process) going forward.
I spoke to several annuity brokers and an IFA. For whatever reason, the best rate, by some margin (about 3%) was with Hargreaves Lansdown.
My SIPP was with II so first step was to sell everything to cash. I was lucky with the timing with hindsight. The fund then got transferred to Just, which happened early Feb. The annuity started last week so the whole process took about 13 weeks. Just started the annuity from the date they received the funds which was a surprise but a pleasant one so last week I received the lump sum portion and a payment from 7 Feb.
I went for an RPI linked annuity with a 50% spouse benefit and a 20 year guarantee period. The guarantee was cheap relative to its value (a good bit of advice from the IFA although for whatever reason he couldn’t compete with HLs rate).
One of the advantages of the HL annuity engine is that the quotes are guaranteed for a period - usually 14 days. So in these volatile periods one can get quotes every day for a period and then pick the best rate. The difference between the best and worst rate during the period I was buying was around £600 or 2%. A meaningful difference.
All up if one is a confident self directed investor the HL process works pretty well although I can see why others may prefer the security of an IFA.
Happy to answer further questions if any.
My SIPP value was almost exactly £1m. For that I achieved an income of £30,600 having taken £250k as a lump sum.
I have no health conditions and nor does my (slightly younger) wife.
The guarantee means that if I die within the first 20 years she will receive the full amount of the annuity. After 20 years it drops to 50%.
The IFA thing was interesting. I’ve always tried very hard to avoid paying fees as a percentage of assets but it seemed impossible when buying an annuity. I really didn’t need advice and would have been happy to pay by the hour but couldn’t find anyone who would do this. HL received slightly under £5k in commission for arranging the annuity. The cheapest IFA wanted 7, and their rates were worse….
I have no health conditions and nor does my (slightly younger) wife.
The guarantee means that if I die within the first 20 years she will receive the full amount of the annuity. After 20 years it drops to 50%.
The IFA thing was interesting. I’ve always tried very hard to avoid paying fees as a percentage of assets but it seemed impossible when buying an annuity. I really didn’t need advice and would have been happy to pay by the hour but couldn’t find anyone who would do this. HL received slightly under £5k in commission for arranging the annuity. The cheapest IFA wanted 7, and their rates were worse….
williaa68 said:
My SIPP value was almost exactly £1m. For that I achieved an income of £30,600 having taken £250k as a lump sum.
I have no health conditions and nor does my (slightly younger) wife.
The guarantee means that if I die within the first 20 years she will receive the full amount of the annuity. After 20 years it drops to 50%.
The IFA thing was interesting. I’ve always tried very hard to avoid paying fees as a percentage of assets but it seemed impossible when buying an annuity. I really didn’t need advice and would have been happy to pay by the hour but couldn’t find anyone who would do this. HL received slightly under £5k in commission for arranging the annuity. The cheapest IFA wanted 7, and their rates were worse….
I think a big part of the success of this decision relates to the timing of the SIPP valuation and the fact you got the full £250k tax free cash out whilst you can. Seems your timing was good . I did not know about the full amount to spouse with 20 years option. That makes me really think differently about it , in a positive way.I have no health conditions and nor does my (slightly younger) wife.
The guarantee means that if I die within the first 20 years she will receive the full amount of the annuity. After 20 years it drops to 50%.
The IFA thing was interesting. I’ve always tried very hard to avoid paying fees as a percentage of assets but it seemed impossible when buying an annuity. I really didn’t need advice and would have been happy to pay by the hour but couldn’t find anyone who would do this. HL received slightly under £5k in commission for arranging the annuity. The cheapest IFA wanted 7, and their rates were worse….
The variable were the same - the annuity is RPI linked.
I was very fortunate with my timing. The SIPP was quite aggressively invested in a mix of trackers and investment trusts, and I got out at a good time. I also saw the 25% tax free lump sum as being under threat at a future budget. I should probably have said that one of the drivers of buying an annuity was the change to the IHT treatment of SIPPs. I’d planned on doing nothing until 75 but Rachel Reeves changed that somewhat…
I was very fortunate with my timing. The SIPP was quite aggressively invested in a mix of trackers and investment trusts, and I got out at a good time. I also saw the 25% tax free lump sum as being under threat at a future budget. I should probably have said that one of the drivers of buying an annuity was the change to the IHT treatment of SIPPs. I’d planned on doing nothing until 75 but Rachel Reeves changed that somewhat…
Have I got this right?
You give HL around 3/4 of a million pounds that they invest, you and your wife receive £600k (index linked) should you both survive 20 years.
If only your wife survives after that she’ll get £15k again index linked.
I would have thought you could have left that 3/4 of a million pounds in a sipp and taken up to £45k a year should you need it and that money would still be yours?
You give HL around 3/4 of a million pounds that they invest, you and your wife receive £600k (index linked) should you both survive 20 years.
If only your wife survives after that she’ll get £15k again index linked.
I would have thought you could have left that 3/4 of a million pounds in a sipp and taken up to £45k a year should you need it and that money would still be yours?
tight fart said:
Have I got this right?
You give HL around 3/4 of a million pounds that they invest, you and your wife receive £600k (index linked) should you both survive 20 years.
If only your wife survives after that she’ll get £15k again index linked.
I would have thought you could have left that 3/4 of a million pounds in a sipp and taken up to £45k a year should you need it and that money would still be yours?
True, but if the OP lives 40 years (until 98), he'll get £1.2m. I wonder what happens if they both die within 20 years, or within 20 days? Is all the money lost, or does it go back into the estate? Does the OP have family he would like to leave money to? You give HL around 3/4 of a million pounds that they invest, you and your wife receive £600k (index linked) should you both survive 20 years.
If only your wife survives after that she’ll get £15k again index linked.
I would have thought you could have left that 3/4 of a million pounds in a sipp and taken up to £45k a year should you need it and that money would still be yours?
My issues with annuities, is that it's an insurance product, and like any, whilst individuals can win or lose, overall the public will lose, as the insurance co need to make a profit, naturally. Also, they are weighted against men. Since 2012, men and women cannot be favoured or penalised by insurers on the basis of sex. Men don't live as long as women. For this reason, men used to get better quotes than women on annuities, and worse quotes on life insurance. They now get the same quotes, which are worse than they should be for men and better than they should be for women. I wonder why the OP didn't buy the annuity in his wife's name? Chances are she'll outlive him by 3 or 4 years on average, so would have been getting the £30K for longer. can you do that with a pension in the husband's name?
Personally, I think annuities are great for people worried about running out of money. But if you look at your pension pot, your house, your savings etc, and you genuinely don't think that'll be an issue, personally I wouldn't bother. And I haven't.
Interestingly, the OP is getting a 4% return, which sounds not bad at 58 and with those guarantees. I was offered 5% recently at 62 with just a 10 years guarantee. Obviously the older you are, the bigger percentage you will be offered.
But there are still a few people around who got 13% at aged 60 in the early 1990s. Now if someone offered my 13% today, I might reconsider
Edited by TwigtheWonderkid on Monday 28th April 08:23
Thanks for posting OP.
Annuities haven’t been popular for a while now so it’s interesting to read of someone with modern day experience and reasoning. Certainly makes sense from an IHT perspective.
My dad has done very well from an incredible annuity rate he secured back some 25 or so years ago and has also been blessed with longevity meaning he’s happily receiving the income now into his 90’s.
What I have witnessed with him is the diminishing need for income into his later years. I’m not sure now how much over and above SP he actually spends, albeit the care element is increasing as his personal spending reduces.
I must say there is a temptation to me in taking a split approach with an underlying annuity (+SP) providing a remainder of life base line, with then a max of fixed term 10 year products to provide an additional fixed income in earlier retirement years combined with drawdown for the top ups when needed (in my case I plan on continuing consultancy on my own terms but drawdown for extra income when needed).
It’s fascinating to read of someone who has chosen this route in this day and age - thanks for posting.
Annuities haven’t been popular for a while now so it’s interesting to read of someone with modern day experience and reasoning. Certainly makes sense from an IHT perspective.
My dad has done very well from an incredible annuity rate he secured back some 25 or so years ago and has also been blessed with longevity meaning he’s happily receiving the income now into his 90’s.
What I have witnessed with him is the diminishing need for income into his later years. I’m not sure now how much over and above SP he actually spends, albeit the care element is increasing as his personal spending reduces.
I must say there is a temptation to me in taking a split approach with an underlying annuity (+SP) providing a remainder of life base line, with then a max of fixed term 10 year products to provide an additional fixed income in earlier retirement years combined with drawdown for the top ups when needed (in my case I plan on continuing consultancy on my own terms but drawdown for extra income when needed).
It’s fascinating to read of someone who has chosen this route in this day and age - thanks for posting.
Shnozz said:
Thanks for posting OP.
Annuities haven’t been popular for a while now so it’s interesting to read of someone with modern day experience and reasoning. Certainly makes sense from an IHT perspective.
My dad has done very well from an incredible annuity rate he secured back some 25 or so years ago and has also been blessed with longevity meaning he’s happily receiving the income now into his 90’s.
What I have witnessed with him is the diminishing need for income into his later years. I’m not sure now how much over and above SP he actually spends, albeit the care element is increasing as his personal spending reduces.
I must say there is a temptation to me in taking a split approach with an underlying annuity (+SP) providing a remainder of life base line, with then a max of fixed term 10 year products to provide an additional fixed income in earlier retirement years combined with drawdown for the top ups when needed (in my case I plan on continuing consultancy on my own terms but drawdown for extra income when needed).
It’s fascinating to read of someone who has chosen this route in this day and age - thanks for posting.
Annuity sales have been increasing - think they were up fairly dramatically last year, IIRC it was suggested largely due to IFAs pushing them. Annuities haven’t been popular for a while now so it’s interesting to read of someone with modern day experience and reasoning. Certainly makes sense from an IHT perspective.
My dad has done very well from an incredible annuity rate he secured back some 25 or so years ago and has also been blessed with longevity meaning he’s happily receiving the income now into his 90’s.
What I have witnessed with him is the diminishing need for income into his later years. I’m not sure now how much over and above SP he actually spends, albeit the care element is increasing as his personal spending reduces.
I must say there is a temptation to me in taking a split approach with an underlying annuity (+SP) providing a remainder of life base line, with then a max of fixed term 10 year products to provide an additional fixed income in earlier retirement years combined with drawdown for the top ups when needed (in my case I plan on continuing consultancy on my own terms but drawdown for extra income when needed).
It’s fascinating to read of someone who has chosen this route in this day and age - thanks for posting.
I don’t know if there’s a set of circumstances that would cause an IFA to steer a client to an annuity - mine dismissed them out of hand.
Sheepshanks said:
Annuity sales have been increasing - think they were up fairly dramatically last year, IIRC it was suggested largely due to IFAs pushing them.
I don’t know if there’s a set of circumstances that would cause an IFA to steer a client to an annuity - mine dismissed them out of hand.
Yes, so I understand. But the OP is the first real world account I’ve read, at least on here, of going down this route. I don’t know if there’s a set of circumstances that would cause an IFA to steer a client to an annuity - mine dismissed them out of hand.
I can’t imagine how nervous I’d be signing off on exchanging a £1m pot for an annuity!
I've been looking into a short term annuity to cover the first five to ten years of retirement.
A little undecided so far, though the immediacy has been somewhat dampened looking at my pot over the last few months.
I've found moneyhelper to be quite helpful evaluating what's available: compare annuities.
A little undecided so far, though the immediacy has been somewhat dampened looking at my pot over the last few months.
I've found moneyhelper to be quite helpful evaluating what's available: compare annuities.
LordGrover said:
I've been looking into a short term annuity to cover the first five to ten years of retirement.
A little undecided so far, though the immediacy has been somewhat dampened looking at my pot over the last few months.
I've found moneyhelper to be quite helpful evaluating what's available: compare annuities.
I actually found the L&G site helpful for looking at 10 year fixed payment “mini” annuities. A little undecided so far, though the immediacy has been somewhat dampened looking at my pot over the last few months.
I've found moneyhelper to be quite helpful evaluating what's available: compare annuities.
I’m considering bridging the gap to SP pension age with a similar product to effectively give me the SP for a decade before I can add that to the mix. That said, versus drawdown I’m not convinced…
Sheepshanks said:
Shnozz said:
I can’t imagine how nervous I’d be signing off on exchanging a £1m pot for an annuity!
Well, £750K. But it’d be too much like tempting fate for me. I was very nervous about buying annual travel insurance recently!Ammasing a £1m pot at 58 though
I buy too many cars, will likely die penniless!TX.
Gassing Station | Finance | Top of Page | What's New | My Stuff