Annuities?

[ynnafymmi]

How do annuities work(i.e whole life annuities)?My auntie put £100,000 into an annuity which pays her £12,000 a year.That equates to 8 and a bit years,but suppose my auntie lives for another 30 years.Surely the annuity company will lose a lot of dosh over these years,or does the annuity company just hope that auntie drops down dead tomorrow?

[TonyV]

They have actuaries that work out the odds.

[Buenchico]

A 12% rate seems to be extremely generous but what you've not told us is how old your aunt is. If you receive an annuity at 60 you'll get a fairly low rate (because the provider will probably have to keep on paying out for many years), whereas if you receive an annuity at 70 you'll get a better rate.

12% is more than double the best rates for people receiving an annuity from the age of 65, so (unless there's been an error somewhere), it seems likely that your aunt didn't start receiving her annuity until she was significantly older than that.

See here for some explanation:
https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/annuities/annuity-rates-aly8c2z86kds

[ynnafymmi]

Auntie is not in the best of health.If she drops dead tomorrow,the assurance company wins.If auntie lives till she is a 100 years old the company will lose£360,000 pounds.A bit of a hit for them.

[ynnafymmi]

Auntie is a drinker and a former heavy smoker,and is not in the best of health.Do you think the annuities company has taken advantage of auntie?

[Buenchico]

They're still being quite generous, ynnafymmi.

Like all gamblers though ('cos that's what they are really) they like the odds to be loaded in their favour ;-)

[ynnafymmi]

Auntie is 60 years old and the money she used was her own money.Will she still get pension money when she hits 65?She has worked off and on(more off)all her life.By the way i have seen her bank statements and yes she does get £1000 per month.Why do i know?I challenged her about it and she showed me her statements.

[Buenchico]

>>> Will she still get pension money when she hits 65?

If you're referring to a private pension, it will depend upon the exact terms of the pension plan.

If you're referring to the State Pension, then definitely not, as she won't qualify for it until she's 66.

[ynnafymmi]

I dont think auntie bothered with pension plans,Buen,sorry i meant 66 not 65.There is bound to be a con in here somewhere.

[Peter Pedant]

// They're still being quite generous, ynnafymmi//
they sure are

she may have got an impaired life annuity

for the v v generous NHS pension which they basically have now stopped and substitued a less wonderful pension - the cross over point was 21-26 y

[ynnafymmi]

An impaired life annuity,PP?Perhaps Buen will come back and tell us if their is such a thing.

[fiction-factory]

It may also be that it is a fixed annuity which remains the same , i.e. it is not index linked . So if she does survive another 30 years she will still get £12000pa which by then might only be worth around £5000pa in today's money.
But the main reason it's so generous must be for the reason Buenchico says.
For state pension, she should get a state pension forecast off gov.uk

[fiction-factory]

Sorry PP- I meant you not Buenchico.

Yes, you get more favourable terms if you are a heavy smoker or have some healt conditions that reduce life expectancy.

Still seems pretty generous though at £12000 pa

[jno]

Peter is never wrong

https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/buying-an-annuity-how-to-shop-around/types-of-annuity

[ynnafymmi]

For giving up £100,000 ,i would be looking for a lot more than £250 a week.It isnt loose change is it.

[fiction-factory]

Depends how long you want to spread your £100000 over. If you want to blow it over 4 years that's a little under £500 pw. But after that you'll have nothing left apart from state pension for what could be 30 years.
It's a great deal as far as annuities go.

[TonyV]

I get £667 per month from a £250K investment.

[ynnafymmi]

Looks like it might be an impaired life policy then.If auntie gets past 8 years,she wins.If she doesnt survive the next couple of years the assurance company wins.

[fiction-factory]

I assume, tony, you took it quite early-perhaps at age 60 or earlier and have index linking and maybe some spouse benefits. It certainly shows how remarkably good ynnafymmi's auntie's plan seems, (despite the OP thinking one minute it's nowhere near enough and in the next breath thinking the annuity company could lose loads of dosh)

[fiction-factory]

>If auntie gets past 8 years,she wins.
Yes, if people on their last few weeks of life get their calculator out. On the other hand she had peace of mind for most of that time knowing she had a decent guaranteed income for however long she lives

[TonyV]

yes ff If I die before my wife she will get 50% until she dies.