Annuities
 

I am shortly going to be 64 and was wondering about getting an annuity next year. I admit it is all a new area for me so any information is welcome. I would simply buy it with savings.
FIrstly- can you buy a UK annuity if resident in Spain ( all the initial questionnaires ask for UK post code?
Secondly - I assume it is taxed in Spain as a pension and therefore part of your income?
Thirdly- once you buy it does the amount you pay not exist as an asset ( if you have 100k and buy an annuity then you don't have to declare the 100k on Modelo 720? ) Or does it simply mean that you have a 100k annuity as an existing asset?
Fourthly- are annuities good idea?

Re: Annuities
 

Am I missing something??
Why would you put 110k into something that might never get the 100k out of. When savings are tax free here in Spain. You only pay tax on the interest.
What happens you need 20k for an emergency???

Looking at L&G 100k would give you less than 5k a year in income.
I have maybe twice that in my pension pot and I take 15k a year and the pot is only down by around 10k and Ive been drawing for four years.
If I want a cash amount I just ask for it..
Dont forget that you will put yourself in a higher tax bracket when adding the payment from the annuity, something that wont happen if you keep the money in cash.

Thing with annuities is, will you live long enough to get the full sum back.
The L&G one says at 65 you would have to live 25 years to see the return of the 100k..

Id stick with cash, put 50k in premium bonds and the rest in a standard high interest earner. That way you always have almost instant access to the money and its not taxed....

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What options are available to non-UK residents? I’ve seen several offshore options and NS&I products but always on the lookout for something I might’ve missed.

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Well there must be a huge number of daft people out there as annuities are apparently extremely popular. The quote I got was actually £6900 - which seems quite good. However,thanks for advice but premium bonds???

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There aren't any except for the NS&I
I didn't bother as cash is king for me.
Why pay tax twice???

My money and I will spend it as and when I want.
Other people can invest and then leave it to the kids or governments if they want...

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Why not premium bonds???

Almost instantly available if you need them. Two chances a month of 'winning' a million and we get a return of about 8% on the amount we have.
My tax bill here was doubled this year because we had a reasonable win last year, not an issue.
Works for me the rest paid for the trip to Oz to see my daughter get married....
Oh and a pound is still a pound (less inflation but again dont care)

Re: Annuities
 

8% is a lucky win ( well above average I imagine). I doubt you get much more than 3% at moment. Besides everything like savings interest is high because of BOE trying to control inflation. Now inflation is dropping interest rates will drop. No one wants high interest rates in a world where borrowing is king. A few years ago you were struggling to find anyone offering over 2% unless you were willing to take risks. Surely annuities give people peace of mind as you know exactly what you are going to get for the rest of your life instead of switching the heating off because you didn't get enough premium bond wins.

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"Two chances a month of 'winning' a million and we get a return of about 8% on the amount we have." You are very lucky / fortunate. I had 50,000 in Premium Bonds for several years and my return was circa 3.00% AER.

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Income from an annuity (provided it is one which has been purchased entirely with an individual's own funds, ie not from a pension fund to which an employer has contributed) is taxed very favourably in Spain - if you took it out when aged 60-65 you would only be taxed on 24% of the income - so that is one advantage of them. However, if in the future you decided not to stay in Spain that advantage would be lost. I am not a fan of them personally, mainly because if an individual takes one out and dies after only a few years then the entire capital is lost. I prefer to have money invested in a SIPP which can be taken as drawdown income and can benefit from capital growth. I have a UK one, I am not sure whether it is possible to set a new one up as a non UK resident now, since Brexit. With a SIPP you can have a nominated beneficiary and (under current UK tax rules which may change at any time) if you die before reaching the age of 75 the pension fund does not form part of your estate for IHT purposes and the beneficiary will receive the entire fund and can withdraw it all free of tax if they wish. If you die aged 75 or over then the beneficiary still gets the fund but will pay tax on any withdrawals.

Tax Agency: Life annuities (agenciatributaria.gob.es)

Re: Annuities
 

Thanks Lynn. Interesting about how they are advantageous in Spain. And yes, Labour have an eye on taxing pensions as part of IHT so I think that is definitely going to change next month much to people's annoyance.

From what I can see the real drawback is if you want to leave money for family on death. TBH single folk with no children then annuities are a good deal. If you have a partner maybe not or children. The other disadvantage I read about is the fees - these tend to cut into things which is a bit off putting.

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There aren’t many that will especially main stream. I missed opening with one of the popular companies by a couple of days in the time between when I decided to open to when I actually did it. Another provider has since closed the door too.

While people are still UK resident should open a SIPP and drop a small amount in there so that you can transfer into it at a later date if required.

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One ironically good (or not) thing is that if you are taking things like blood pressure meds etc you get a slightly higher payment ( because statistically you might die earlier!!! - not good thing!!!

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I've had mine since before the referendum vote and have been allowed to keep it, although they know I am tax resident in Spain. However, the provider informed me that although I can sell funds at any time to take drawdown income, or hold them as cash, as a non UK resident I would not be allowed to sell then reinvest the funds in new investments, which is very annoying as I'd like to move some of mine into better performing funds. If I were ever to return to the UK I could then, of course. But the fund is only a very small one which I don't take any income from as it's not needed, so not vital.

Re: Annuities
 

Thats why all my spare cash during the late 80s and 90s went into my private pension.
I can draw whatever I think I need (until the pot is gone) but on my death, my wife will get a % to continue to take as a pension. Both the kids get a % but they cannot access until they reach pensionable age.
If I live another 20 years (I will be 82) The pot should be Ok for them. I wont need as much once I get my OAP.
When I'm 82 my daughter will be 52 and the boy will be 50 so they will still have 15 plus years to go before retiring.
So they will benefit from the growth their % of pension makes in those years. Unless I spend it on fast women and cheap cars.

Win win.
I cant ever see that giving someone money for them to give you back approx what the interest is on that money ever sounds like a good idea and the younger you are the less you get.
Thats like betting on a three legged horse in a race. You aint never going to win.
100k in a decent bond would pay more than most Annuities would. But Im not rich enough to have that kind of cash to squirrel away.
As Ive said I would rather spend the lot if I can.

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1. If you cash in a fund you will pay tax at your highest marginal rate. That will more wipe out anything you could possibly do with the remaining money.

2. To qualify for favourable tax treatment in Span an annuity must have been bought wholly with your own money, that is with zero contributions to the fund from employers. In UK that is rarely if ever going to be the case.

3. In the late 80's/early 90's some pension providers were offering plans with GAR's (Guaranteed Annual Returns) which were completely unsustainable in the medium, let alone the long, it's what broke Equitable Life who at one time were offering GAR's of as much as 15% PA. if you happen have one of these then think very carefully what to with it!

I had such a scheme with an old employer but with much lower GAR of 5% so come the time I retired at 62 there was no viable option but to use the money to buy an annuity. The fund was a modest £35k and when I bought it in 2013 it started off paying out £109/mth, 5% PA compounded over 10 years means for 2023/24 it's now stands at £186!
At that rate I only have to survive another 6 years, which :fingerscrossed: I believe I have a very good chance of, to recover that initial £35k outlay, then it will be paying a few pennies short of £250/mth!

On the other hand I have a second annuity, again bought for £35k, but paying out at a flat rate of £122/mth. To break even on that I will have to live another 13 years or until age 87 and that's a significantly poorer prospect :(

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Someone self-employed paid into private pension?

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Judging by people's responses then annuities don't seem to that popular ?

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I don't think so. As well as the fact that as I said earlier, once you buy an annuity you have effectively signed away that capital and if you should die shortly afterwards none of it can be passed onto a beneficiary, I think they are also inflexible. You will only receive the amount of regular income so don't have the ability to take a larger amount should you have the need to pay for something like major household repairs or perhaps private health treatment if you are facing a long delay in the public health system.

However, it is certainly true that they have become more popular in the last couple of years because annuity rates have risen.

'Annuities set to remain popular while economy is in flux' - FTAdviser

I think, perhaps, it depends on whether you have sufficient regular pension income from other sources. If you have, maybe not the best idea to tie up a lump sum in annuity, but if you haven't then the need for regular income becomes more important.

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I would not touch them with a barge pole - for all reasons stated by others which I agree with - I found these summaries on the net

'Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money's worth. Annuities often have high fees compared to mutual funds and other investments. You can customize an annuity to fit your needs, but you might need to pay more or accept a lower monthly income.'

and... 'Annuities are considered poor investments for many reasons. Depending on the annuity, these include a variety of high fees, with little to no interest earned, an inability to keep up with inflation, and limited liquidity.'

It is much safer to keep it under your control and not give it all to others who may not return it.

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Not necessarily, when taking out an annuity there is usually an option for a residual pension for the survivor of the policy holder, typically 50%.

Both mine have such provisions for my wife. Obviously the monthly benefits were reduced by some proportion but it's far too long ago now to recall by how much, I do remember it wasn't that dramatic of a hit.

Re: Annuities
 

Current figures are illustrated here.

Annuity Rates: View Best Annuity Rates from the UK Market (hl.co.uk)

Using the figure quoted by the OP, if he invested his 100k in a high interest savings account or a fixed rate bond (I am currently getting 5% on mine) then when he dies any beneficiary he names in his Will, not just a spouse, will inherit the whole account balance and can continue to receive the same amount of interest as he gets if they open their own account. Whereas according to the figure quoted in the illustration the surviving spouse would be getting less than 5% income and would have no access to the capital if they wanted it for other things. If the OP is not married or in a civil partnership then it would be irrelevant.

When my husband was due to get an annuity from an employer's defined contribution pension scheme I told him not to bother taking a reduced income in order to get a smaller pension for me in the event of his death, because I would have more than enough pension income in my own right. Plus, annuity providers normally use illustrations assuming that the spouse is 3 years younger than the annuity purchaser (as is the case in the figures shown in the link) and the younger the spouse is, the more their survivor's pension will be reduced. I am 7 years younger than my husband.

If the OP is able to invest the funds in a SIPP, it would give the opportunity for the value of them to rise well in excess of 5% a year so even if he took that amount of drawdown income the capital sum would still grow over the years and again whatever beneficiary he cared to name would be able to inherit the whole sum.

Re: Annuities
 

However Lynn I think I am right in saying there aren't any Savings accounts or investments ( other than annuities) that will guarantee 5% fixed for an indefinite period. Most are fixed at a max of 5 years and the capital can't be touched. It is high at the moment as the BOE tackled inflation after COVID and the war in Ukraine. The last move by BOE indicated the hope the reduce rates as in US and EU. If this happens then unlikely to be high interest accounts around for long and most likely they will probably flatten out at 2-3 % over the next 5 years. The annuity I looked at was offering 6.9 % . So I agree that annuities maybe lack flexibility and it is always a gamble against statistics they aren't quite as bad as people think. I mean if I left my money in a safe savings account like NSI bond and took £6900 a year it would last me about 15 years( can't be bothered to do actual maths). If I died within that period then what was left could be inherited by my son. So if I start at 65 I would imagine I have a good statistical chance of living to 75 ( I am still fit for my age - just ran 2km in 10 mins) . That would be 2/3 of money gone - leaving my son around 30K. If I got to 80 it is all gone!! And then in all probability I need help. So if I have a UK pension the extra £6900 would certainly help at a time when you don't want to be worrying about money. So- what I am saying- is that annuities could be a good financial deal if you are healthy and can beat statistics ( given the poor health of many Brits). Am I totally wrong? Or is something missing from my reasoning?
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Re: Annuities
 

But does the annuity guarantee that level of return indefinitely? In the illustration I posted the figures given are on the basis of either no guarantee or a guarantee for 5 years. So what happens after the 5 years?

Anyway you seem to have made your mind up, so good luck with it.

Re: Annuities
 

Well that came from Moneyhelper annuity calculator which is a government site. I just checked and it is £6936 a year until death. This is only for me so no dependent and it is not inflation balance. It is also from now when I am 64. So what am I missing - that makes everyone think I am being a fool? The chances of me surviving 15 years from now seems above an average chance given my health- and after that I would be getting a good return especially if I have my UK pension. Only downside might be the fees and the tax so I don't know how much that impacts on the number. Maybe £1500 a year? Meaning I would be on around £ 5000 a year but still better than a savings account which I very much doubt will being paying 5 % for the next 15 - simply because the world has changed considerably from the 1980s when borrowing and debt was still considered a bad thing. I remember in the late 80s when you got over 10% in savings accounts!!! But that will never happen again iny lifetime. Anyway is it the tax and fees that are the devil's details?