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  1. #1

    Fixed Term Annuities

    I've been delaying a decision to access a pension which would provide me with 2000 p.a. (in arrears) from a current fund value of 42k. This is an old guaranteed pension paying approx 250 p.a. above the best of the current, very low rates. It is a single, level lifetime annuity but I'm now questioning the wisdom of that commitment as I already have another lifetime annuity at a very good rate. I've found a Fixed Term Annuity (different provider) which would give me the same annual income guaranteed for 8 years and a guaranteed lump sum of approx 30k at the end of that period, which I could then use to buy an annuity at what may, or may not, be better rates at that time or, alternatively, drawdown. That's the gamble!

    The income is not essential, but is in the 'nice to have' category, especially until my state pension starts and I'd rather not take any great risks with it!

    Any observations would be very much appreciated.

  2. #2
    As always in the case of retirement planning, the true answer depends on when you live till

    If I have read your words correctly, and assuming that my arithmetic is correct the deal looks like this, using this month as a start date for feeding the calculation:

    01/09/2016 (42,000)
    01/09/2017 2,000
    01/09/2018 2,000
    01/09/2019 2,000
    01/09/2020 2,000
    01/09/2021 2,000
    01/09/2022 2,000
    01/09/2023 2,000
    01/09/2024 2,000
    01/09/2025 30,000

    That cash flow/deal is a rate of return (XIRR function on Excel) of 1.24%.

    I would have thought that it would be feasible to settle on taking the 42K and using one of the safer funds or trusts to produce the income element and some limited risk on the final capital. This route involves a degree of risk, but also a potentially better outcome. However, it is risk taking even in the "safest" funds/trusts/ETF's or direct equities.

  3. #3
    If the income is not needed then one could consider allowing dividends/income to be reinvested with the hope (not certainty!) of a better lump sum when it is needed in the future, but a long view is wise.

    I accept that the annuity approach offers far less risk (assuming that the provider is covered by the Government schemes), but if the deal is as I have described it, to my mind it does not feel a great offer - maybe I miss the state of annuities nowadays!

    Assessing carefully your appetite for risk is critical before you take the plunge. I have some elements of my portfolio that have rubbish returns, but are as safe as I can make them as a bedrock (NS&I index linked and Premium Bonds being two examples) Some other elements would stop my heart at times if I was not covered safely elsewhere.

    One view that I would always hold -do not base your call on a view of interest rate rising at the requisite time (or falling further either!)


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