When should I take my private pension?

[Albert the InfoGipsy]

Having just passed 60 I'm starting to look at the timing of turning my pension funds into pensions. What I'm interested in at this stage is what macroeconomic conditions favour a higher return on an annuity. I know that you lot are not pukka financial advisers (mostly, anyway) so it's more a matter of getting a feel for things.

As a total layman in this area I would assume that if the economy is in turmoil and interest rates are high then annuity rates would also be high. On the other hand, finance always seems to work according to its own arcane laws and it might not be as simple as I think.

In yesterday's Evening Standard there was a piece by Anthony Hilton saying that according to the accountants' way of looking at things the combined pension funds of the FTSE 100 companies have moved from £12 billion deficit to £30 billion surplus due to the way the interest rates have improved. He also says that this will only make sense to accountants. Unfortunately you need to register to read the article so I can't easily link to it.

I suppose the short question is 'Do I have a better chance of a decent annuity rate (i.e. pension) while the markets are in meltdown or by waiting until things calm down in a year or two?

 

 

 

[andyh4]

As a definite non expert InfoG.  My advice would be to wait.

The financial markets are in a total mess right now.  The only way out I see at present will be with high inflation which will devalue the depth of debt.  (UK Governement has already given the BoE the right to ignore inflation as its prime control parameter).  High inflation should see annuity rates rising, so the value of your pension pot will become higher.  The downside is that high inflation will mean that your payments from such an annuity will in time loose value - unless you pay to inflation-proof them.

[Benjamin]

As an alternative to buying an annuity Google Income Drawdown and have a read. I'm no expert and each person's circumstances will be different.

[dr orloff]

The two most important factors affecting annuity rates are interest rates and life expectancy.  In general, you would expect annuity rates to rise with interest rates.  However, increased life expectancy is a downward pressure on interest rates.  This is why annuity rates have been at a standstill despite the rate rises over the last couple of years. 

I wouldn't worry about trying to predict future macroeconomic conditions, since no crystal balls exist and base your decision entirely upon your personal circumstances.

 

 

[ams]

Generally pension funds are invested in the market. Depending on the type of private pensions, for example if you have with profits policies, then generally the fund is guaranteed on the other hand it could be market related, thus it will have fallen a huge amount over the past year.

 

It is no harm to ask what kind of tax free lump sum is available, what terminal bonuses may be available or generally for advice from the companies concerned.

 

At present i am waiting for the market to sort itself out and would be reluctant to tap into my pensions until after 65 as i do not want to pay the additional 8% to the CMU de base.

 

ams

[AnOther]

Whilst it's true that level annuity rates are at a bit of a peak at present once you start to factor in such things as widows pensions, escalation, and guarantees the rates drop alarmingly. Also in the present circumstances your pension pot(s) will be under extreme pressure so it may be best to hold on until the situation at least stabilises and markets hopefully recover some of their catastrophic losses - on the other hand however.............................[:'(]

If you can afford to wait another 5 years then a QROPS might be worth looking at, if nothing else it would get your money into € which protects you against erosion from adverse moves in the exchange rate.

Finally don't forget your open market option and also impaired life annuities which can boost your income by as much as 30% if you have a condition or conditions which statistically signaficantly reduce your life expectancy.

Difficult calls at the best of times [blink]

[Albert the InfoGipsy]

Thanks, All .

You mentioning escalation, ErnieY, reminds me that when I got some figures a while ago one of the options was a pension guaranteed to increase by 3% p/a. Trouble was, it started from a much lower base than a flat one. I worked out that it would take 15 years to catch up, with a further 15 years before the total payout equalled what I'd have got from a flat pension.

What's the benefit? [8-)]

 

[AnOther]

One of my pensions, a final salary scheme from an ex employer in the 80's, is guaranteed @ 5% or the RPI, whichever is the greater. Just the sort of thing which brought Equitable life down although some of theirs were guaranteeing much more than that.

Bummer is it's only going to give me £2k PA [:(]

[mint]

Oi, you there, Erns, don't turn your nose up at £2k pa!  Just think how many bottles of Chilean red, Auzzie shiraz or South African Chardonnay that buys at €2 a pop from Lidl.

Or even how many table d'hote meals from our local Intermarché at €9 for 3 courses you can get for that.

The wine actually tastes fine and the meals, even at their ridiculously low price, are really tasty and served to you by a proper waiter wearing a "tablier".

You're just spoilt by those telephone figure wage packets you get while you swan off to these off-shore oil rigs in your helicopters and sit around posting on the forum and watching TV soaps! [:D]

[Clair]

[quote user="sweet 17"]You're just spoilt by those telephone figure wage packets you get while you swan off to these off-shore oil rigs in your helicopters and sit around posting on the forum and watching TV soaps! [:D][/quote]

Let's not forget the face-stuffing, as demonstrated by the pictures posted last year HERE... [Www]

[AnOther]

What's this, gang up on poor old Ern time ?

Telephone numbers, ha - and that nosh wasn't all for me you know.

Must remember to turn off the webcam when I go back offshore after my current 8 weeks leave [Www]

[mint]

[quote user="Clair"][quote user="sweet 17"]You're just spoilt by those telephone figure wage packets you get while you swan off to these off-shore oil rigs in your helicopters and sit around posting on the forum and watching TV soaps! [:D][/quote]
Let's not forget the face-stuffing, as demonstrated by the pictures posted last year HERE... [Www]
[/quote]

Clair, this is the first time I've seen those pictures.  Thank you for posting them.

Now everything Erns ever tells us about life being hard can be completely discounted!

[Llantony]

My pension pot is very small, but not quite small enough to let me take it all in cash.  I have retired and will have to buy an annuity at some time.  But at least if I do it soon I'll start getting a few hundred a year if I'm lucky.  I was advised to take the 25% one can take in cash but do I have to buy an annuity at the same time?    Thought might as well put it in Premium Bonds tho I know they are statistically a poor return - there's a tiny chance of a very good return!

[gosub]

AFAIK you will have to buy the annuity at the same time that you take the lump sum and don't forget to tell the French taxman about it, also any winnings on the premium bonds will be classed as unearned income and attract social charges in France.

[dragonrouge]

I retired early  from one of the two leading telecommunications companies in the UK.  So far so good each year increase by RPI although that obviously does not keep pace with things.

Earlier this year the Trustees decided to 'buy' a policy from the Prudential which guaranteed existing pensioners their pensions as against the majority of holdings in the Stock Exchange and of course Govt gilts and the like.

The only downside the Trustees could see was the unlikely demise of the Prudential.  Just look at their share drop in the last two days.

Now going for the red wine to dull the pain.

At this rate I am going to have to go back to the UK and back into harness.  Now what is the law on breach of contract? (I left the comms industry for a better life in the law)

[AnOther]

Generally it is as Gosub says, you take your lump sum and buy an annuity at the same time but the people to ask for the definitive answer are the trustees as the T&C's of your particular scheme may allow otherwise. UK government rules allow you to delay purchasing an annuity until age 75.

I'm slightly confused by your post though because on the one hand you suggest that you are already in receipt of your pension ("each year increase by RPI") yet you also say that you are worried about the future value and having to go back to work ?

Once you have bought your annuity or are receiving a final salary pension that's it, the  provider cannot vary the amount or the terms so you are insulated from the current troubles. If they got it wrong and are suffering that is their problem not yours.

My own 'defined contribution' pot has probably lost 30% this year pretty well ensuring my hopes of early retirement have receeded significantly [:'(]