WEBVTT 00:00:00.000 --> 00:00:03.220 A common view that people have about annuities 00:00:03.220 --> 00:00:06.459 are that when you retire, whatever you've saved 00:00:06.459 --> 00:00:10.080 into your company pension over your life is taken 00:00:10.080 --> 00:00:14.140 by that company and then converted into a monthly 00:00:14.140 --> 00:00:17.719 payment that you get paid each month for the 00:00:17.719 --> 00:00:23.019 rest of your life. Now, in the UK until 2015, 00:00:23.780 --> 00:00:29.100 this is nearly what everyone did. Then In 2015 00:00:29.100 --> 00:00:32.219 everything changed and they changed for the better. 00:00:32.780 --> 00:00:37.039 The pension freedoms we received back in 2015 00:00:37.039 --> 00:00:40.640 acknowledged that actually the money was ours 00:00:40.640 --> 00:00:43.960 and that we should have much more choice in what 00:00:43.960 --> 00:00:48.840 we decide to do with it. Now not everybody got 00:00:48.840 --> 00:00:52.859 the memo on that and many people still actually 00:00:52.859 --> 00:00:58.390 default to this option and Quite often employers 00:00:58.390 --> 00:01:01.969 are kind of happy for people to do that. And 00:01:01.969 --> 00:01:04.650 sometimes for people, these options seem difficult 00:01:04.650 --> 00:01:07.950 or too risky for them to actually consider. The 00:01:07.950 --> 00:01:10.829 thing is, I don't think the options are difficult 00:01:10.829 --> 00:01:14.969 and the outcomes need not be particularly risky 00:01:14.969 --> 00:01:18.230 either. I mean, I've been chatting to a few people 00:01:18.230 --> 00:01:22.769 recently about how they use annuities and what 00:01:22.769 --> 00:01:27.239 I learned is that annuities by themselves are 00:01:27.239 --> 00:01:31.879 neither good nor bad. In fact they suit some 00:01:31.879 --> 00:01:35.299 circumstances perfectly, whereas for other people 00:01:35.299 --> 00:01:39.219 they are best avoid them completely. So what 00:01:39.219 --> 00:01:41.760 I want to do, just to clarify things, I want 00:01:41.760 --> 00:01:45.920 to run through two different scenarios. The first 00:01:45.920 --> 00:01:50.299 guy is somebody who had contacted me via my website 00:01:50.299 --> 00:01:55.120 and the other is, well, me. And you'll see what 00:01:55.120 --> 00:01:59.859 I mean. So let's pretend the guy's name is Jim. 00:02:00.939 --> 00:02:05.519 Now, Jim has six years until he gets his state 00:02:05.519 --> 00:02:09.060 pension. Now he's due to get the full state pension 00:02:09.060 --> 00:02:11.879 and he's pretty much worked as a caretaker all 00:02:11.879 --> 00:02:15.139 his life, but early on his working career. He 00:02:15.139 --> 00:02:20.159 worked in a school. From that he got a small 00:02:20.159 --> 00:02:22.740 council pension, which was a confined benefit 00:02:22.740 --> 00:02:26.020 pension, which is the same every year. And that'll 00:02:26.020 --> 00:02:29.599 be about £3 ,000 a year. And he could claim that 00:02:29.599 --> 00:02:32.879 if he wants to. He also, he's got a small house. 00:02:33.080 --> 00:02:36.539 He paid off the mortgage a few years ago. Absolutely 00:02:36.539 --> 00:02:39.560 loves life. He's got a ton of hobbies that he 00:02:39.560 --> 00:02:44.789 likes doing. But he hates working at the moment 00:02:44.789 --> 00:02:48.590 and his health unfortunately has dipped recently 00:02:48.590 --> 00:02:52.009 and to be honest, he's desperate to spend more 00:02:52.009 --> 00:02:55.990 time on his hobbies before he's worried that 00:02:55.990 --> 00:02:59.789 his health might deteriorate anymore. Now he's 00:02:59.789 --> 00:03:06.629 worked out that his budget is around £15 ,000 00:03:06.629 --> 00:03:11.509 a year. He's never really driven He doesn't go 00:03:11.509 --> 00:03:14.949 on holiday a lot or have expensive breaks, but 00:03:14.949 --> 00:03:18.509 this 15 ,000 pound a year is the budget he thinks 00:03:18.509 --> 00:03:22.289 will keep him comfortable. Now, after leaving 00:03:22.289 --> 00:03:24.409 the school where he worked, he worked for a private 00:03:24.409 --> 00:03:27.490 company for a while, and he always paid what 00:03:27.490 --> 00:03:29.810 he could into his pension, which wasn't a lot 00:03:29.810 --> 00:03:32.830 to be honest, and he's managed to accrue a pot 00:03:32.830 --> 00:03:36.449 of 65 ,000 pound in total in his company pension. 00:03:36.909 --> 00:03:40.870 Now is quandary as a choice between three things. 00:03:41.490 --> 00:03:45.370 One, he's considering keep on working despite 00:03:45.370 --> 00:03:49.689 his decline in health. Two, is to start drawing 00:03:49.689 --> 00:03:54.909 down his pension about 11 ,000 pound a year until 00:03:54.909 --> 00:03:59.009 the state pension then kicks in when he's 67. 00:03:59.370 --> 00:04:03.969 Or three, to buy an annuity. So I asked him to 00:04:03.969 --> 00:04:07.919 talk to me. how he felt about these options. 00:04:08.419 --> 00:04:10.520 And what he said is the thought of continuing 00:04:10.520 --> 00:04:13.240 working actually filled him with dread. He didn't 00:04:13.240 --> 00:04:16.939 want to start a different job, a new kind of 00:04:16.939 --> 00:04:20.879 job. Curtake in itself was, be going to be honest, 00:04:21.060 --> 00:04:24.259 a bit physically too demanding for him due to 00:04:24.259 --> 00:04:27.560 his decline in health. And also his employer 00:04:27.560 --> 00:04:31.439 starts to become quite critical of his work output 00:04:31.439 --> 00:04:35.879 as well. And now the second option. He had considered 00:04:35.879 --> 00:04:40.019 drawing down his pension, but if he did that, 00:04:40.779 --> 00:04:44.920 he could, he could only put 65 K into a hundred 00:04:44.920 --> 00:04:48.519 percent safe investments because it's your timeframe, 00:04:48.740 --> 00:04:51.860 six years, and he wouldn't feel comfortable in 00:04:51.860 --> 00:04:55.060 taking any risks with a stock market because, 00:04:55.060 --> 00:04:57.399 you know, stock markets within a six year period 00:04:57.399 --> 00:05:02.110 can really go up and down quite a lot. This means 00:05:02.110 --> 00:05:05.689 that with his 3k council pension per year, he'd 00:05:05.689 --> 00:05:08.870 still be over a thousand pounds short each year 00:05:08.870 --> 00:05:12.250 on his target. And this really is a worry for 00:05:12.250 --> 00:05:15.209 him, to be honest. But option three is to take 00:05:15.209 --> 00:05:20.050 out an annuity. Now, Jim, like many people first 00:05:20.050 --> 00:05:23.129 thought that annuities were something that you 00:05:23.129 --> 00:05:26.129 got for life. You know, maybe they'd offer him 00:05:26.129 --> 00:05:28.009 a couple of thousand pounds a year for the rest 00:05:28.009 --> 00:05:29.870 of his life, which obviously for the next six 00:05:29.870 --> 00:05:33.509 years be No good for him at all. But of course, 00:05:33.850 --> 00:05:37.230 they're not that. And he has an offer now from 00:05:37.230 --> 00:05:41.389 an annuity company of nearly £12 ,000 per year 00:05:41.389 --> 00:05:44.769 on a six -year annuity. And that will take up 00:05:44.769 --> 00:05:47.290 until he gets his state pension. Now, if he adds 00:05:47.290 --> 00:05:51.610 the £3 ,000 cancel pension, he gets close enough 00:05:51.610 --> 00:05:56.290 to his target budget. Now, Jim's still considering 00:05:56.290 --> 00:05:59.980 his options, but the annuity route is a real 00:05:59.980 --> 00:06:02.959 option than he is considering. And for me, it 00:06:02.959 --> 00:06:06.879 does kind of make some sense. Now, the second 00:06:06.879 --> 00:06:11.519 scenario is me. And for me, annuity makes little 00:06:11.519 --> 00:06:15.660 sense. I spent quite a lot of my career working 00:06:15.660 --> 00:06:18.860 in councils and universities and hospitals, but 00:06:18.860 --> 00:06:21.720 to keep things simple for this video, I'll call 00:06:21.720 --> 00:06:25.040 all these defined benefit pensions my council 00:06:25.040 --> 00:06:32.370 pension. When I add this council pension to my 00:06:32.370 --> 00:06:35.889 state pension at 67, it's actually enough for 00:06:35.889 --> 00:06:38.810 me. It kind of meets all the needs and I've got 00:06:38.810 --> 00:06:41.910 a very detailed budget. And when you add the 00:06:41.910 --> 00:06:44.129 council pension and the state pension together, 00:06:44.170 --> 00:06:47.850 I'm absolutely fine. Now that means I won't need 00:06:47.850 --> 00:06:50.730 to top it up with the private pension I have. 00:06:51.170 --> 00:06:55.189 So I intend to spend all my private pension before 00:06:55.189 --> 00:07:00.180 I reach 67. So I retired at 55 and I've still 00:07:00.180 --> 00:07:04.319 got 11 years left before I get my state pension 00:07:04.319 --> 00:07:09.199 now I'm claiming all my council pensions already 00:07:09.199 --> 00:07:12.920 and then I have this I have these cash -free 00:07:12.920 --> 00:07:16.660 lump sums to draw from as well Also, then I have 00:07:16.660 --> 00:07:22.319 my private pension Now I could take this pot 00:07:22.319 --> 00:07:26.519 of money and say buy and 11 -year annuity to 00:07:26.519 --> 00:07:30.300 take me up to state retirement age. That doesn't 00:07:30.300 --> 00:07:32.300 make any sense for me. It's not my best plan. 00:07:32.800 --> 00:07:35.480 So what I'm going to do is when I live on my 00:07:35.480 --> 00:07:39.120 council pensions and the tax -free lump sums 00:07:39.120 --> 00:07:42.579 for the next six years, that will take me up 00:07:42.579 --> 00:07:47.379 to 61. I'll leave my private pension pot invested 00:07:47.379 --> 00:07:52.600 so it can continue to build. And then from the 00:07:52.600 --> 00:07:57.769 age 60, 2 to 67 I will start to claim it now 00:07:57.769 --> 00:08:00.350 this gives me six years more time for the pot 00:08:00.350 --> 00:08:03.850 to grow obviously before I even touch it so as 00:08:03.850 --> 00:08:07.529 you can see Jim and I are in very different positions 00:08:07.529 --> 00:08:12.509 well while I would be really attracted to an 00:08:12.509 --> 00:08:16.430 annuity in Jim's situation for me it doesn't 00:08:16.430 --> 00:08:21.470 really make any sense I'm wondering did you or 00:08:21.470 --> 00:08:25.189 are you about to choose an annuity and what's 00:08:25.189 --> 00:08:27.730 the rationale behind that? I think it'd be really 00:08:27.730 --> 00:08:29.230 interesting for others to hear.