Although u know u shouldn’t as it can make an ass out of u and me

When u retire u intend to take out an annuity, that assumes the market hasn’t crashed just before u buy or that interest rates aren’t near to their low.

The present day proposition.

By Sam Benstead from interactive investor

How much do annuities pay ?


Annuity rates are typically greater than gilt yields, as investors pay a lump sum and generally do not receive their money back at the end of their annuity policy. Annuity rates are higher for older buyers and lower for younger buyers, as the length of the term will likely be longer.

A standard single life, no-guarantee annuity rate for a 65-year old is now around 7.13%, or £7,130 a year per every £100,000 saved, according to Sharing Pensions, an annuity comparison site.

This means that a £500,000 lump sum would deliver an income of £35,650 a year until death, with no link to inflation. Annuity rates will vary depending on the provider, the age of the customer, and changes in interest rates.

In contrast, a gilt maturing in 20 years – which would be a typical annuity length for someone retiring at 65 and living until 85, yields 4.5%. This means £500,000 invested in a bond issued by the UK government, trading at its par value, would deliver an equivalent income of £22,500 a year. But at the end of the 20-year term the owner would also receive their £500,000 back. The total profit delivered by the gilt would be £450,000 (£22,500 multiplied by 20).

On the other hand, the annuity would have paid out £713,000, but minus the £500,000 cost of the plan, this would only be a profit of £213,000 – that’s an equivalent annual yield of about 2.15%.

Buying a gilt therefore could offer a substantially better return, with the advantage that it can be sold at any point in the term, which may be triggered by an early death. Annuities don’t come with the same advantage, and deliver a worse return for a typical life span. All subjective to your tax position.

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The capital sum of a gilt is only guaranteed if u hold to maturity, if u sell earlier u may not get back all of the amount invested but considerably more than zero.