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Basic Query Regarding Annuity Rates
Pension Beginner
Posted: 12 January 2018 10:21:30(UTC)

Joined: 12/01/2018(UTC)
Posts: 1


I'm a little confused by the Hargreaves Lansdown best buy annuity rate table.

I'm approaching 50 and looking at options for retirement. If I have £100k available to buy an annuity (single life, level, no guarantee) my options appear to be
At 55, £4319
At 60, £4588

Why should I wait until 60 to get £4588 / year ? I would have already received £21595 if I had bought the annuity at 55.

I would be £10k better off by the time I'm 100 (!) if I had bought the annuity at 55.

Am I making a basic error ? I would assume taking an annuity later would increase income.
Ski Man
Posted: 03 February 2018 17:32:26(UTC)

Joined: 03/02/2018(UTC)
Posts: 2

Two basic mistakes.

First the HL rate for 55 is 4139, not 4319.

Second, you've done your calculations assuming you'll live to 100, whereas life expectancy is much lower than that.

For example, life expectancy at 65 is probably about 19 years, so to age 84.

Life expectancy at 55 or 60 would be more than 19 years but less than 84 in total.

Obviously you may live to 100, but that's not how annuities are calculated.

Finally, think whether annuities are good value. The 55 rate takes 24 years to repay 100,000 even if you don't earn any interest. So you'd be 79 before you started getting any investment return. The 60 rate takes 22 years, so until you're 82.

As an idea, these annuity rates equate to about 0.275% annual yield for a 20 year life expectancy. Pretty poor.

If you lived to 100 you'd have got about 3.2 % yield. Still not spectacular.
ashley willis
Posted: 05 February 2018 16:44:14(UTC)

Joined: 05/02/2018(UTC)
Posts: 1

Two main reason you might want to wait a few years :- (1) is that your £100k if invested could grow into a much larger sum which would purchase a much larger annuity and (2) if gilt rates increase then annuity rates will rise. It would be a brave (or reckless) person who would say which is the best option for you!
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