Life Are annuities still available these days on the Irish market?

[DirectDevil]

Are annuities still available these days on the Irish market ?

If so ;
1. What are the returns like ?
2. Is capital deposited to buy the annuity secure / guaranteed or at any risk ?

I had one some years ago with Norwich Union in Ireland. I had a lump sum for which I wanted a home for about 5 years. Although there was a tax liability on the regular periodical payments it was a good investment.

 

[jpd]

Yes, they are available

1. No idea
2. The capital used to purchase the annuity is no longer yours - it is replaced by a promise to pay the monthly/quarterly/annuity for as long as you live by the anniuty provider. How secure that is depends on the security of the provider but if you choose a large insurance company, you are probably as safe as it gets

 

[Steven Barrett]

Yes, they are still available. Rates aren't great. What they are depends on age, indexation, spouse's pension, guaranteed period.

Annuity rates for single life, non index linked annuities

Male 60 - 4.46%
Male 65 - 5.15%
Female 60 - 4.23%
Female 65 - 4.83%

They wouldn't be as good as the guaranteed annuities being offered years ago (some of which lead to the collapse of the underwriter of the rate).

Life companies are highly capitalised. Even the ones that caused the downfall of The Equitable Life were paid out. The money is invested in long term bonds and take a very conservative approach.

A guarantee is only as good as the person giving it. Even for the most solid of life companies, you can never guarantee 100% risk free but it isn't that far off it.


Steven
www.bluewaterfp.ie

 

[ClubMan]

Male 60 - 4.46%

Probably a dumb question but, does that mean that if I have, say, €1m in my pension at retirement and buy an annuity then I'm getting €44,600 p.a. for the rest of my life?

I presume that there's no easy way to compare this to the potential income from €1m moved to an ARF?

 

[NoRegretsCoyote]

I presume that there's no easy way to compare this to the potential income from €1m moved to an ARF?

Not really. An annuity is (almost) risk free, an ARF is more risky and depends on what your mix of assets is. But over the long run greater risk usually means greater return

For me an annuity should be a small part of a retirement income approach as it insures against potential heavy equity losses early in retirement that you can't grow out of.

But don't forget that a state pension is basically an index-linked annuity already. I don't think it makes sense for anyone to put more than 20% of their pension fund at retirement into an annuity as you almost certainly have the insurance of a state pension already.

 

[DirectDevil]

Thanks for the replies - much obliged.

 

[Steven Barrett]

Probably a dumb question but, does that mean that if I have, say, €1m in my pension at retirement and buy an annuity then I'm getting €44,600 p.a. for the rest of my life?

I presume that there's no easy way to compare this to the potential income from €1m moved to an ARF?

With an annuity, the insurance company assumes the risk. With an ARF, you do. There are minimum withdrawal rates with an ARF (4% and then 5% from age 71). Annuities are invested in long term bonds whereas ARF's can be invested in anything. They are usually invested in a mix with an equity content.

Then there is the big unknown...how long will you be alive for?

Very different products.


Steven
www.bluewaterfp.ie

 

[Rasputin]

With an annuity, the insurance company assumes the risk. With an ARF, you do. There are minimum withdrawal rates with an ARF (4% and then 5% from age 71). Annuities are invested in long term bonds whereas ARF's can be invested in anything. They are usually invested in a mix with an equity content.

Then there is the big unknown...how long will you be alive for?

Very different products.


Steven
www.bluewaterfp.ie

There are no ongoing fees once you buy an annuity ?
The fees associated with an ARF are quite significant in my opinion and need to be considered along with the ongoing holding risk of the product.

 

[Steven Barrett]

There are no ongoing fees once you buy an annuity ?
The fees associated with an ARF are quite significant in my opinion and need to be considered along with the ongoing holding risk of the product.

Of course there are. But they don't tell you what they are. They are built into the annuity rate that is given.

 

[LDFerguson]

I presume that there's no easy way to compare this to the potential income from €1m moved to an ARF?

It's possible to model this on a spreadsheet easily enough. ARF starting balance + fund growth - income - charges = end of year balance. Repeat. The harder part is what fund growth rate to assume and also the fact that in practice, while fund growth might be positive over a few years, it's not linear growth and it goes up and down. So the spreadsheet model will be at best a rough guide due to the fixed nature of an annuity vs the fluctuating nature of the ARF.

 

[NoRegretsCoyote]

It's possible to model this on a spreadsheet easily enough. ARF starting balance + fund growth - income - charges = end of year balance. Repeat.

You can do this but it is more or less pointless! There is such a range around estimates of investment returns and life expectancy any exercise is subject to huge uncertainty.

An annuity is basically an insurance product in case you: (a) live very, very long and/or (b) suffer heavy equity losses early in your retirement that you can't grow out of. As I've said before an annuity should be a part of your retirement income, but a small part. I would try and calculate what you think the minimum is for a comfortable retirement is. Aim to cover half the gap between the state pension and your personal minimum with annuity income.

Cost is not the only consideration here either. Don't forget that your annuity dies with you, while what remains of your ARF is taxed at 30% and is outside the normal CAT thresholds in an estate. Annuity income is assessable for the Fair Deal, so is the value of your ARF. Neither is subject to the three-year cap the way your PPR is.

 

[jasdpace@gmail.]

You can do this but it is more or less pointless! There is such a range around estimates of investment returns and life expectancy any exercise is subject to huge uncertainty.

I agree but need to add that, in general, Liam's contributions are very solid.

As I've said before an annuity should be a part of your retirement income, but a small part.

I think what would be interesting to explore what is the smart play for private sector DB members approaching retirement whereby doing nothing effectively results in annuity type income post retirement. On the assumption that annuity type income should indeed only form part of your retirement income, the question to be addressed is at what point does it become interesting to take the hit between the standard TV and the equivalent annuity cost. For those of normal life expectancy at that point, is this hit (i.e. based on a normal not an enhanced TV) likely to be too much?

Annuity income is assessable for the Fair Deal, so is the value of your ARF. Neither is subject to the three-year cap the way your PPR is.

Just to clarify, are you saying that ARF income is disregarded for FD purposes?

 

[jpd]

The capital in the ARF would be assed as providing an income, regardless of whether the income was actually taken. Just like other savings/investments

 

[NoRegretsCoyote]

Just to clarify, are you saying that ARF income is disregarded for FD purposes?

No, ARF wealth is very much included in the Fair Deal assessment.

There's an interesting actuarial question as to whether the Fair Deal eats up more of your wealth if it's in annuity format or ARF. I've never worked it out but I doubt it's exactly the same.

 

[jasdpace@gmail.]

The capital in the ARF would be assed as providing an income, regardless of whether the income was actually taken. Just like other savings/investments

Surely not x 2

On a serious note, how precisely are ARF assets and income taxed and treated under FD? Anyone know if there are guidance notes?

How exactly would, say, €500,000 in an ARF be treated on the asset and income side?

Presumably/depending on the above calcs. there comes/may come a level of ARF where FD ain't worth it?

What do financial advisers tell their clients in this regard?

 

[Marc]

Annuities get a bad rap, but is it time to look more closely?

Joe is 66 and just retired. He and his wife Mary are now in receipt of their State Pensions which come to about €24,000pa combined.

www.linkedin.com

 

[Steven Barrett]

Surely not x 2

On a serious note, how precisely are ARF assets and income taxed and treated under FD? Anyone know if there are guidance notes?

How exactly would, say, €500,000 in an ARF be treated on the asset and income side?

Presumably/depending on the above calcs. there comes/may come a level of ARF where FD ain't worth it?

What do financial advisers tell their clients in this regard?

The value of the ARF is taken for FD at 7.5%. No cap. ARF income is not listed as a given income for FD.

 

[jasdpace@gmail.]

Thanks Steven - how is it "taken"?

Say, a fund of €500K and for a single person using FD for 3 years and then dies?

The €37.5 in relation to the first year is ultimately taken from the ARF? Is this taken gross from the residual fund?

 

[NoRegretsCoyote]

The value of the ARF is taken for FD at 7.5%. No cap. ARF income is not listed as a given income for FD.

This is I presume to avoid essentially double taxation of both the asset and the income arising from the asset.

 

[jasdpace@gmail.]

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The finance guys in the Indo & Times are saying something different to what's been said here. I wouldn't be surprised if these financial journalists have it wrong but one of them is quoting from a financial adviser who apparently specialises in this stuff. From googling, all I know for sure is that is that it seems very hard to find authoritative guidance on the precise calcs anywhere.

Can anybody provide me with a reliable worked example of how this all works?