Fixed Term Annuities
Posted: March 25th, 2024, 11:06 pm
Note I will be creating a separate topic regarding my current use of financial planners, which I am considering discontinuing, so no need to discuss on this thread.
Two thirds of my pension is a DB pension in payment, which is sufficient for me live comfortably on, but not extravagantly. The other third was transferred out of DB and is sitting in a pension pot in drawdown - put into drawdown to access the tax free lump sum to assist in purchase of a house (downsizing but upgrading...). No taxable withdrawals have been made to date. The intention of having the non-DB element, was to have a pension pot available to pass on to my children, as they are unlikely to be as well placed when it comes to retirement. Though it would be available to me if the need arose.
I am approaching 62, so not eligible for the state pension for another 5 years - at that time, my DB pension + the state pension would allow me to live more extravagantly, i.e. re cars, holidays, technology. I am drawing the DB pension, which puts me in the tax-payer bracket.
At my last review, the planner suggested an option, probably to demonstrate that he was trying to earn his fees, but with no strong advice. His option was to split the fund - half to a fixed term annuity to take me to state pension age, and half to remain in the pension pot. I dismissed the option at the time, treating it as a distraction.
However, I can't get my mind away from the current annuity rates, which are very favourable from what I can gather. But would they work in my favour?
So my question is what are the pros and cons for a FTA compared to just making drawdowns from the existing pot?
Possibly a factor - I have some health conditions which would make the rates slightly more favourable for me, but I would consider myself healthier than I appear in my medical records.
As a starter...
+ the income from the annuity would be guaranteed
- but on the other hand, I can fix the drawdown amounts to be the same, and my pot may either improve or decline as the markets dictate
+ protection against a market crash
- but maybe not too concerned about missing out on potential significant growth.
Then again...
- If I took an lifetime annuity, and fed it into ISAs every year, on death would these ISAs be available tax-free to my children? (as opposed to getting a taxable pension from the pot), The income in my ISAs would be available for extravagancies...
- But presumably at risk if care home costs become a factor.
Sorry, I started asking about fixed term annuities, but now my mind is creeping back to lifetime annuities!
Not looking for advice as such, more the factors that I need to be considering.
TIA
elkay
Two thirds of my pension is a DB pension in payment, which is sufficient for me live comfortably on, but not extravagantly. The other third was transferred out of DB and is sitting in a pension pot in drawdown - put into drawdown to access the tax free lump sum to assist in purchase of a house (downsizing but upgrading...). No taxable withdrawals have been made to date. The intention of having the non-DB element, was to have a pension pot available to pass on to my children, as they are unlikely to be as well placed when it comes to retirement. Though it would be available to me if the need arose.
I am approaching 62, so not eligible for the state pension for another 5 years - at that time, my DB pension + the state pension would allow me to live more extravagantly, i.e. re cars, holidays, technology. I am drawing the DB pension, which puts me in the tax-payer bracket.
At my last review, the planner suggested an option, probably to demonstrate that he was trying to earn his fees, but with no strong advice. His option was to split the fund - half to a fixed term annuity to take me to state pension age, and half to remain in the pension pot. I dismissed the option at the time, treating it as a distraction.
However, I can't get my mind away from the current annuity rates, which are very favourable from what I can gather. But would they work in my favour?
So my question is what are the pros and cons for a FTA compared to just making drawdowns from the existing pot?
Possibly a factor - I have some health conditions which would make the rates slightly more favourable for me, but I would consider myself healthier than I appear in my medical records.
As a starter...
+ the income from the annuity would be guaranteed
- but on the other hand, I can fix the drawdown amounts to be the same, and my pot may either improve or decline as the markets dictate
+ protection against a market crash
- but maybe not too concerned about missing out on potential significant growth.
Then again...
- If I took an lifetime annuity, and fed it into ISAs every year, on death would these ISAs be available tax-free to my children? (as opposed to getting a taxable pension from the pot), The income in my ISAs would be available for extravagancies...
- But presumably at risk if care home costs become a factor.
Sorry, I started asking about fixed term annuities, but now my mind is creeping back to lifetime annuities!
Not looking for advice as such, more the factors that I need to be considering.
TIA
elkay