I am age 59 and have worked most of my life in financial services but never in pensions. It was a topic that seemed very complex. The pension scheme administrators visited our company each year. Listening to them speak about the investment landscape only made it sound more difficult to grasp. Nevertheless, in my late thirties I did realise that I needed to focus intently on building up a retirement fund. I max'ed my AVCs from that point onwards. An employer contribution of 10% helped. In my fifties a better pensions understanding developed as I began to research, learn and explore everything I could about the industry and the products. Until recently all indicators said ignore annuities, at least they did for me. The alternative of an ARF was not very appealing either as the investment risk remained with me after retirement. The more I learnt about ARF "fees" on here re-enforced my concerns.
For pension contribution purposes I’ve been “retired” since 2015 with the intention of drawing a retirement income in 2025 when another UK DB pension kicks in. The fund value when I finished contributing was c€420,000. In November this year it was worth €526,000 having been invested in a mixture of level 3 and level 4 managed funds. This is growth of roughly 25% in 8 years. If I had taken 5% per annum in income in those years I estimate that my fund would be significantly lower now with my worries about bombing out a good bit higher. Maybe a different investment strategy would slow or even stop the reduction in value, who knows?
About 6 months ago I discovered this forum (AAM) and my education about pensions entered the fast lane. Information about fees, commissions, advice and the different types, distribution channels, competition within them, etc became clearer with frank contributions from many expert contributors. At the same time interest rates began to quickly and steeply rise around the world and I began regular monitoring of publicly available annuity rates. An annuity rate in excess of 5% (no escalation and single life) became easily available and the best rate I was quoted by early November was 5.27% with a 10 yr guarantee. This was from New Ireland who were consistently competitive.
Being offered over 5% guaranteed for life was very attractive while removing a potential worry into old age. Leaving money in my estate was not a consideration in my case. Of course I may miss out on a fantastic bull run over the next few years but I don’t think I want the associated stress of regular stock market crashes, revaluations, investment discussions, etc.
So, four weeks ago I decided to buy an annuity. In the end I chose a joint life (50%), non-escalating 10 year guaranteed annuity with Zurich at 4.86%. I took my 25% TFLS which is now invested in state savings at 2.2% for 10 years.
Did I do the right thing? I really think I did. One contributor on here commented that the decisions at this stage of your life are not to be made now. Your thoughts and options should be intensively under consideration for some time well before the day for a decision arrives. My wife thinks my recent pensions interest bordered on obsessiveness but my investment (no pun intended) in time up to now along with much spreadsheet modelling allows me to be at peace with my decision. What did I learn that might help someone else?
For pension contribution purposes I’ve been “retired” since 2015 with the intention of drawing a retirement income in 2025 when another UK DB pension kicks in. The fund value when I finished contributing was c€420,000. In November this year it was worth €526,000 having been invested in a mixture of level 3 and level 4 managed funds. This is growth of roughly 25% in 8 years. If I had taken 5% per annum in income in those years I estimate that my fund would be significantly lower now with my worries about bombing out a good bit higher. Maybe a different investment strategy would slow or even stop the reduction in value, who knows?
About 6 months ago I discovered this forum (AAM) and my education about pensions entered the fast lane. Information about fees, commissions, advice and the different types, distribution channels, competition within them, etc became clearer with frank contributions from many expert contributors. At the same time interest rates began to quickly and steeply rise around the world and I began regular monitoring of publicly available annuity rates. An annuity rate in excess of 5% (no escalation and single life) became easily available and the best rate I was quoted by early November was 5.27% with a 10 yr guarantee. This was from New Ireland who were consistently competitive.
Being offered over 5% guaranteed for life was very attractive while removing a potential worry into old age. Leaving money in my estate was not a consideration in my case. Of course I may miss out on a fantastic bull run over the next few years but I don’t think I want the associated stress of regular stock market crashes, revaluations, investment discussions, etc.
So, four weeks ago I decided to buy an annuity. In the end I chose a joint life (50%), non-escalating 10 year guaranteed annuity with Zurich at 4.86%. I took my 25% TFLS which is now invested in state savings at 2.2% for 10 years.
Did I do the right thing? I really think I did. One contributor on here commented that the decisions at this stage of your life are not to be made now. Your thoughts and options should be intensively under consideration for some time well before the day for a decision arrives. My wife thinks my recent pensions interest bordered on obsessiveness but my investment (no pun intended) in time up to now along with much spreadsheet modelling allows me to be at peace with my decision. What did I learn that might help someone else?
- Be prepared to put the time in to improve your knowledge. This could be the most expensive purchase you will ever make and the more you know the less confused you will be when having important conversations. An annuity was right in my case - It is not right for everyone and you need to make this decision for yourself. My experience below is just that - my experience.
- Shop around for the best rate. Both income and commission.
- I wanted to know could you predict when annuity rates were likely to rise or fall. I’ve been told that the rates are "complex to calculate" but that there is a link to central bank interest rates. In the Irish market, annuity rates seem to be now beginning to fall from what I think was their current peak (in November when interest rates stopped rising).
- If you include an escalation feature in your annuity, there is a significant drop in payment which takes a long time to recover from. Get both quotes if relevant.
- Conversely, it was surprisingly cheap to include a joint life – My wife is 4 years younger and the best rates were 5.27% single and 4.86% joint. A difference of 0.41%.
- A guarantee of 10 years is an even smaller cost but get comparison quotes to be sure.
- There are commissions payable to intermediaries who offer advice and/or to arrange the paperwork. These seem to range from 0.5% to 3%. The rate seems to be negotiable. The higher the commission the lower your payout. One intermediary quoted a fee of €4000 with zero commission.
- Annuity quotations are available directly from Standard Life and New Ireland by phone and/or e-mail. Irish Life and Zurich annuity rates are available on line. I didn’t try Aviva. A commission rate of 0% is available from at least one provider by going direct. Ask for it if going direct.
- If using an intermediary then go through the process with more than one before making a choice. Levels of knowledge seem to vary and I was given wrong information at least once.
- If you are just a little bit organized it is possible to do the application process yourself by dealing directly with an insurance company. I said I wanted execution only, explained why in a short e-mail and their compliance officer approved it.
- It’s also possible to dis-invest existing plans yourself and to instruct the money to be transferred to the new provider. A key component is the "ready and willing" letter which has to be sent by the annuity provider to the existing plan administrator. Get this in motion as soon as possible.
- An annuity quote typically only lasts for 14 days. Using this industry applied constraint, be prepared to call the pensions administration departments regularly to "encourage" prompt processing. In my case I can say that the Irish Life and Zurich service teams responded well and satisfactorily.
- If using the DIY approach that I did, obtain all of the claim and (if possible) application forms beforehand and familiarize yourself with them.
- Establish and source whatever supporting documentation is required. You might need to move fast when the right annuity rate comes along.
- To save time initiate the application and dis-investment processes at the same time.
- My main fund (a buy out bond) was with Zurich. They were not offering the best annuity rate but agreed to match the best rate I had. That made the process quicker and simpler.
- Be prepared to go (ie purchase a retirement income product) early. In my case I am drawing a pension income 15 months or so before I had intended to but I’ve gained an additional 15 months of my lifetime annuity income and possibly at a higher rate than if I’d waited.
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