Should I get an annuity linked to inflation?

P

probe

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On 13 July 2011 David McWilliams wrote:
"The country that wants to [recover from debt] must revert to its own currency and adopt a moderate inflation target of let’s say 8pc to 10pc. "

Is this likely? If so, I'd better get a pension tied to CPI even if it does start at 65% of the flat rate. That would take 20 years (ie my expected remaining life) to equal the flat rate at 4% CPI inflation but only 11 years at 8%.
 
probe said:
On 13 July 2011 David McWilliams wrote:
"The country that wants to [recover from debt] must revert to its own currency and adopt a moderate inflation target of let’s say 8pc to 10pc. "

Is this likely? If so, I'd better get a pension tied to CPI even if it does start at 65% of the flat rate. That would take 20 years (ie my expected remaining life) to equal the flat rate at 4% CPI inflation but only 11 years at 8%.
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If the CPI pension is 65% of the flat rate one, it takes 11 years to equal the flat rate one at 4% inflation and 5.5 years at 8%.

I think it's sensible to look for a CPI linked pension, particularly if you are healthy and comfortable living off the lower amount in the early years.

20 to 25 years is a very long time, and it only takes 2 or 3 years of high inflation to eat away at a fixed pension.
 
Do any of the life companies offer annuities with CPI increases rather than fixed rates of increase?
 
DerKaiser:
By my calculations, it takes 20 years for the *cumulative* value of a 4% increase from a 65% base to equal the cumulative of a flat 100%.

The *annual* figure may equal the flat rate after 11 years but there's still catch up to do.

Dave:
Yes, Irish Life was offering me a 5% annuity with CPI escalation if I started at 65% of the flat rate amount. I rang Canada Life just out of interest but they would not disclose their annuity rate. Is this some kind of commercial secret?


Given average life expectancy I'll just get my money back after 20 years but if I had it on deposit in the post office (I know, I can't do that) I'd get the interest and still have the capital.

The alternative is an ARF and take a guess how long I'll last !
My concern is that if the govt takes McWilliams' advice for once and allows inflation to erode debt, it erodes fixed incomes too.
 
Yes you can get a CPI linked annuity but you need to set the max rate at inception. The max CPI rate that you can set is 7.5% but this drastically reduces the annuity rate and considering where CPI is at the moment, I would seriously qusetion whether it would be worth taking that kind of risk.
 
Oh, indeed, we've had negative CPI but I can't help be worried about what the government might do to stimulate inflation to sweat down the debt. But for that to happen, we'd be outside eurozone controls so who knows what else could happen. I'm inclined to take the most I can now, and take the risk.
 
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