| Non-motoring > Annuity protection | Tax / Insurance / Warranties |
| Thread Author: legacylad | Replies: 22 |
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Thu 8 May 25 07:35
Annuity protection - legacylad
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Something I’d never previously heard of. An extended family member has recently paid a substantial 6 figure sum to pay the care home fees of a relative. Out of that relatives savings pot. I suppose there is a logarithm that takes into account age, health issues etc…just got to hope that the relative in the care home now lives long enough to get value for money, but the amount of money paid, if invested, should grow substantially year on year. Glad I wasn’t going the sums. |
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Thu 8 May 25 10:07
Annuity protection - zippy
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I am finding that annuities are fairly complex beasts with loads of options. In the worst case, as you suggest , they die with the holder, but there are options where you can fix guarantee periods, the longest have seen is 30 years, so if the holder were to die quickly, they still keep paying out (in my case the payments would be equal to about twice the annuity cost). And there are options where a surviving partner can get a percentage of the original annuity up to 100% and even mixtures of the two. Plus there are options where the annuity can be inflation linked (rough sums suggest I would need to wait 23 years at 3% to break even) and would be better off with the equivalent of more money when younger. There are also fixed term annuities. One I was looking at recently, just out of curiosity, would give me an income for say 5 years, then give me my entire capital back to re-invest, or a percentage of the capital, including positive growth - though that would result in a smaller income. I was blue skying a fixed 8 year fix that would see me to state pension age then re-investing in another annuity at that point. A personal problem is that there are almost too many choices and I can't decide :-| Last edited by: zippy on Thu 8 May 25 at 10:09
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Thu 8 May 25 10:25
Annuity protection - zippy
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I wanted to keep this bit separate: About 10 years ago, a dear family friend went in to a retirement village for company and purchased an annuity to do it. They didn't last the night and they were in reasonable health, just didn't want to live alone. When I had an endowment mortgage, I found I could sell the endowment to the endowment company or to a third party and pay off the mortgage. The third party would have given me a significantly extra amount. Mrs Z wouldn't have it, because the third party had a not insignificant interest in you dying sooner. She was a PA / conveyancer at a firm of solicitors and was convinced, from clients who had done similar, seemed to die. About 20 years later, it was the subject of a few episodes of Endeavour where someone purchased endowments and then bumped the insured off in seemingly silly accidents. |
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Thu 8 May 25 10:45
Annuity protection - Manatee
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I didn't check them but annuity rates went up of course when Truss crashed bond prices. The whole subject is fascinating to numbery people. Around the time I was making pension decisions, you'd have needed £1m+ to buy a joint annuity of £25k with some inflation protection at 65 or so. I have some occupational pension with up to 5% inflation rises, so I went with drawdown on the SIPP. If you aren't familiar with the term, look up 'tontine'. Get your drinking/walking friends together and set up your own annuity scheme in which your pension increases every time one of you falls off the perch, and the last survivor scoops the pool. But watch your back! |
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Thu 8 May 25 11:13
Annuity protection - zippy
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>> But watch your back! >> I'm sure there was a film or TV series where a tontine was a feature, but I think it was over some fine wine that went to the survivor rather than some great wealth. The same applies to lifetime annuities of course. The insurance company has an interest in you dropping dead and who can trust some of these big corporations! :-D Rates have much improved, with about half that needed now, which is why I am interested - I find that I am checking the value of my funds and worrying about them daily, even though they are currently just above the running average since the Trump meltdown - and the security of an annuity really appeals - but will be getting one with a guarantee period so as to protect the pot for a number of years should I pop my clogs. |
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Thu 8 May 25 11:36
Annuity protection - smokie
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I'm not *that* savvy re them but I never saw the point of annuities - from when I looked at them they seem to cost a lot compared to what you might get back, even if you last the course. Often not inflation linked or for a couple. Made me think of a friend who worked for BA all his life, eventually retiring a bit over 60 IIC on a really decent pension. As it happened he croaked less than two years in, and by unfortunate coincidence so did his wife shortly afterwards, so all the value of the pension was gone. I suppose I've been lucky so far with my SIPP but despite some fairly hefty withdrawals (basically all the tax free element) it is still worth quite a bit more (approx 12%) than when it was first set up in cash terms (10 years ago now). And when I croak, barring other unforeseen circumstances, there will be something for those remaining, even though Rachel will probably get her mitts on some of it. |
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Thu 8 May 25 11:49
Annuity protection - zippy
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There is a "luck" element with both options: With the annuity you want to live long enough to get your monies worth. With the SIPP you want the markets to perform. Using the 4% or 5% drawdown rule for the SIPP, an annuity for me comes to about 9% of the total monies received over a 30 year period and is guaranteed. For example if an annuity paid me £110k over 30 years, then the SIPP would have paid £120k before running out. I am not sure it's worth the risk to me, when the guarantee is considered, which you don't get with the SIPP. |
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Thu 8 May 25 11:53
Annuity protection - Manatee
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>> I'm not *that* savvy re them but I never saw the point of annuities - >> from when I looked at them they seem to cost a lot compared to what >> you might get back, even if you last the course. OTOH you could live a lot longer. The thing is most people don't know when they are going to die. It's easy to get fixated on working out which is the 'best value' option but that usually depends on how long you/your spouse will live, which you don't know. I got mired in this (I had just been told that 50% of people with my diagnosis were alive 5 years later - that was 7 years ago). Then realisation dawned that what I needed was a plan that would not have us running out of money regardless of how long we lived. It doesn't matter whether we extract every possible penny, what we need is financial security because we can't earn any more money. When I looked at it that way the decision was somewhat easier. |
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Thu 8 May 25 13:14
Annuity protection - Robin O'Reliant
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>> >> >> Then realisation dawned that what I needed was a plan that would not have us >> running out of money regardless of how long we lived. It doesn't matter whether we >> extract every possible penny, what we need is financial security because we can't earn any >> more money. When I looked at it that way the decision was somewhat easier. >> That's why I plumped for an annuity, peace of mind. |
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Thu 8 May 25 13:37
Annuity protection - martin aston
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We briefly considered an annuity when mum went into care a couple years ago. As she was 92 we reasoned that it was unlikely to be the best financial option. Happily she is still with us so longterm that might not turn out to the case. Even so her funds will last until she is 100. They even earn a bit of taxable interest. As others have said you don’t know when you as an individual are going to die but the insurance company actuaries manage the rates across the cohorts in the company’s favour. For we customers every case is different and attitudes to risk and certainty vary so there is no right answer here. |
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Thu 8 May 25 16:42
Annuity protection - Terry
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There is a great deal of luck involved in pension outcomes. Those age 70+ entered working life in the era of final salary pension schemes. These were slowly replaced from 1990s onwards although some mainly public sector still have residual rights under these schemes. The fortunate get to retirement with a comfortable pension (possibly) around 50% of their final salary + state pension + any other investment income they have accumulated. Drains on income - mortgage, children etc - are probably history. The rest, and certainly younger folk need to make separate arrangements. Pension choices are fundamentally about risk. Using a capital sum to buy an annuity means someone else assumes the risk that market returns fail to meet expectations. Depending on your circumstances some of the annuity can be sacrificed to: - pay a pension to a spouse - provide for inflationary increases - provide a rebate in the event of an early death - etc etc Whilst it may be nice to provide for ones family, as Manatee says - the cautious approach is to ensure that no matter how long you live that you have financial security. You can't take it with you, but living ones final years worrying about whether the cash will last is unappealing. |
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Thu 8 May 25 16:32
Annuity protection - bathtub tom
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>> If you aren't familiar with the term, look up 'tontine'. Get your drinking/walking friends together >> and set up your own annuity scheme in which your pension increases every time one >> of you falls off the perch, and the last survivor scoops the pool. Weren't tontines made illegal, as they make 'bumping off' other survivors seem like a good idea? |
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Thu 8 May 25 21:17
Annuity protection - Manatee
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>> >> Weren't tontines made illegal, as they make 'bumping off' other survivors seem like a good >> idea? They are in the UK. It's a very historic thing - even if they weren't illegal you'd need authorisation from the Financial Conduct Authority for the investment side and to issue annuities and no provision will have been made for tontine operators. They do exist elsewhere. en.wikipedia.org/wiki/Tontine TBH I'd never heard of tontines until I was in Stourport basin around 20 years ago and saw the Tontine Hotel. I looked it up. It's shut now, but still called Tontine Buildings. Last edited by: Manatee on Thu 8 May 25 at 21:22
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Thu 8 May 25 13:54
Annuity protection - Zero
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>> An extended family member has recently paid a substantial 6 figure sum to pay the >> care home fees of a relative. Would need to be. Quote "The average weekly cost for residential care in Surrey is around £1,373. Nursing care homes in Surrey can cost around £1,937 per week." Say between £70k and £100k PA, |
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Thu 8 May 25 14:05
Annuity protection - zippy
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When Mrs Z was younger, her parents lived in a semi-detached Victorian "villa". It was nice but required a fortune in maintenance and updating. Their neighbours, without kids, had the funds to do that and the place was spectacular. About 10 years ago they sold it up and both moved in to the best care-home in town, newly built, like a 5 star hotel. Still is very nice. I hate to think what the weekly fees are. |
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Thu 8 May 25 14:25
Annuity protection - zippy
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>>Weekly fees... Between £1600 and £1800 a week. Bistro extra. Two years proof of funds required. |
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Thu 8 May 25 16:42
Annuity protection - bathtub tom
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I've always swerved annuities, endowment mortgages and placing my pension in the hands of an insurance company, as they would all go to making someone else a profit. I know teachers who were convinced to put their pensions into the hands of someone else and ended up with almost nothing. Endowment mortgages that left the mortgagee with a debt at the end of the period. I know I'm a cynical old sod, but I've reached beyond my 'three score and ten' with a healthy wedge that should keep SWMBO going if I give up. Reminds me, I must convince her to get 'online' with our capital. I'm having a general anaesthetic later this month..................................... |
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Fri 9 May 25 07:58
Annuity protection - Falkirk Bairn
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I have a mixture of final salary pensions and money purchase schemes (annuity taken out aged 60). However, the money purchase schemes did not really grow as much as I had been led to believe - a combination of lower than expected growth and annual charges even when the growth was very modest. I did however have plan B - a mixture of shares ISAs and Cash Isas that have done well Rarely touched, 2 x in nearly 20 years, there is a good sum for each of the 6 grandkids. The above plan assumes we do not fall into the hands of the Care Home Vulture Industry |
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Fri 9 May 25 08:14
Annuity protection - Zero
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I had an interest only endowment mortage in Mid 1980's, in thiose days it was about the only way you could get one. Halfway through that mortgace term* I moved and swapped to a reypayment type but kep the endowment payments up. After 25 years with terminal bonus, it payed out exactly enough to cover the principal borrowed 25 years earlier. Funny co-incidence huh? So I guess it kinda worked. The money came in handy, but I guess had the investment potential of stuffing money in the matress. *Black monday struck during that period, and interest rates went up to an utterly unnafordable 13% and life in a carboard box on the street beckoned. Fortunately that madness didnt last long. If I liquidate, I guess I (we as a couple ) can manage about 10 years in residential care. Last edited by: Zero on Fri 9 May 25 at 08:15
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Fri 9 May 25 08:41
Annuity protection - Bromptonaut
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Like Zeddo we found it difficult to get anything other then an endowment in the eighties. Endowments were given a very hard sell by Estate Agents and there were all sorts of weasel words about repayment loans. We found one with what was then the Anglia Building Society with the help of a more honest agent who still got the commission for a 25 year term policy. My Father took out an endowment in the sixties and was investing in at a time when tax relief on the premiums was still available. Dad was paying Higher Rate Tax and I think that added a significant chunk. Even so, when it paid out in 1985, the excess over what was owed on the mortgage was only enough to allow him to buy an Accord rather than a Civic. IMHO endowments died with the end of tax relief, the stock market going backwards over several periods was no help either. |
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Fri 9 May 25 10:06
Annuity protection - Terry
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Endowment vs repayment is all about risk. With repayment the only variable is the interest rate - beyond individual control. It unambiguously pays off the loan at the end of the term. Endowment came with the expectation they would yield a surplus. Premiums were set using assumption which made them look plausibly attractive. They additionally carried the risk of a variable market + management overhead. Financial advisors liked them as they no doubt got a commission for each punter signed up. Personally - being risk averse - all my mortgages (now long since cleared) were repayment types. |
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Fri 9 May 25 10:22
Annuity protection - Falkirk Bairn
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Not an Endowment Mortgage payment. Just a straight forward with profits Life Insurance Policy taken out with Royal Insurance. Royal got out of Endowment Insurance & passed to other insurers and ended up with Phoenix. It paid out a week before the 30 years was up. The mistake I made was taking the policy with Royal Insurance. If I had taken the same type of policy, same payments with Standard Life the amount would have been much much more! Standard Life paid out annual bonuses throughout the Policy (Phoenix almost stopped in the last 10/15 years). Standard Life's final bonus was also bigger. I was glad I paid in for 30 years as I would have spent the money every month had it not been a Direct Debit every month. How do I know? Friend had an Endowment Mortgage - same sort of money paid in every month - he got a lot more back in 25 years than I got back in 30 years. 5 more years of payments and 5 more years of Compound Interest/Growth should have seen me better off - except I did not use Standard Life! |
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Fri 9 May 25 10:36
Annuity protection - Bromptonaut
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My parents put money in a term policy payable on second death so that my sister and I would have enough cash to pay IHT. Invested via Norwich Union. By the time Mum died, leaving an estate well in excess of the nominal IHT threshold there were so many reliefs that nothing was payable. The payout, several tens of thousands, allowed us to clear our mortgage five years short of its term. There was also a bonus that Norwich Union demutualised and we got a useful stack of shares. |
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