No. The annuity itself will be cheaper for the reason you say, but the overall cost when added to the income drawdown payments already taken will be higher than the cost of buying the annuity would have been at an earlier age.
Quite right.!!
No, I'll win a bit also. I'll be able to live a better life style for a short period of time. When all my dosh is spent on wine, women and whisky and the rest wasted, I'll borrow against my house. I will have invested my dosh in a speculative area and will take the chance of losing it, but I reckon I'll get a better overall return than the annuity (possibly).
In message , Peter Saxton writes
Your not drinking enough of it then.
OP:
"does an investment strategy of going for better performing funds now (e.g. fixed interest, bonds, etc.) and switching new contributions (without converting existing holdings) to equities when they pick up make any sense?"
Generally a bad strategy in that you are buying equities after they have recovered - rather than before. Since March the FTSE is up 1000 points so anyone buying now has missed out - I doubt the FTSE will go up another 1000 points in the next 6 months (but I hope I'm wrong). Similarly buying bonds now is arguably buying them when there are expensive.
If you are going switch investments you need to look at things other than recent performance - ideally measures of value (e.g., P/E ratios for equities) than you can say look cheap on a very long-term view. Some equities still look cheap, but not that many compared to six months ago.
Thom
I used to only drink beer or champagne if they were available so I'd only drink whisky on rare occassions and consume it as fast as beer.
In message , Peter Saxton writes
Ah that explains it. Its always that 'Oh all right then, I'll have another half'. that causes the trouble.
Basically no. GDP is somewhere around £1 trillion, and the value of the All Share index is currently about the same (was quite a bit bigger). Total government debt is about 30-40% of GDP (I'm not sure of the current figure). There are a few countries with debt of more than 100% of GDP but it generally isn't a very comfortable position. Also not all government debt is in gilts (short term bills, premium bonds and national savings).
On top of that there has been a huge increase in the corporate bond market. In the late 80s ISTR that was only about 10% of the size of the gilt market, but a few years ago it became bigger than the gilt market - that might be what you were thinking of.
No, It was a few years ago that I recall the comment, so it is obviously no longer true. Mind you, the tendency of HMG to reduce the number of gilts in issue until nemesis catches up with them may also have had an effect.
It's a gamble - but if you don't buy the annuity, you "win" if you die early. That strikes me as being the wrong way round....
Isn't this something that a bookmaker might be prepared to take up? The odds must be reasonably well established.
Come to think of it, insurers and bookies have a lot in common.
I'm not sure what you mean by that, what growth in profits do you think you need to justify a given market level? As I've argued a number of times my feeling is that the market is good value even with zero growth. The forward P/E is something like 12, i.e. 8% earnings yield, and with growth even just keeping up with inflation, i.e. 0% real, that would mean 2-3% earnings growth a year. Actually more than that for at least a few years if interest rates stay low because most companies issue bonds and as they mature the companies are refinancing them at lower rates.That suggests a medium-term return of at least 10% and probably more like 15% even with no change in the P/E. To me that seems much too high when gilts are yielding less than 5%.
"Daytona" wrote
How would this work? A payout if you survive for a specified term (to specified age), eg for 25 years or to age 75?
Underwriting needs to work in reverse - you don't charge extra to "impaired lives", but instead charge extra to those who are "super-fit". It may not be easy to determine whether a particular individual is "superfit" or "normal". Also, you might expect more people who (think that they) are superfit to buy these policies - so the price would rise. I wouldn't really expect the level of mortality shown by the group buying these policies to necessarily follow any of the usual "standard" mortality tables - hence it may not be quite so "simple to price" after all ...
On reflection I think my line of reasoning was hasty and fuddled. I think long-term profit growth might not be there, but my view on the next 6 months really comes down to "hunch". The market is cheap by several measures, but I think any increases will probably be tempered by other factors (house prices, geopolitical events, UK growth and so forth). I don't think that's a reason to stay out of UK equities though (as I'm not investing on a 6 month horizon!).
Mind you, all my recent "guess the FTSE level" attempts have been wildly wrong.
Thom
For people who don't want the existing insurance style annuity arrangement, they'd know how long their money could last and arrange a sum of money to be paid if they're alive at a certain date. It would have to start at a high age eg
100 otherwise an annuity might be more cost effective.Why not ? They're only making the same type of judgements as they do now.
Daytona
"Stephen Burke" wrote
I think you are agreeing with what I said!
"Stephen Burke" wrote
True, but there are large chunks of people buying annuities - the new-style "anti-assurance" being considered in this thread would probably not be purchased by as many people as annuities are. So the effect of "self-selection" may be more pronounced.
"Stephen Burke" wrote
Regular life assurance is priced based on standard mortality tables. These tables model the level of mortality exhibited by the type of population of people taking out these policies & passing the underwriting. That means that the type of person who would "self-select" against the insurer is one with poor mortality - hence these people are "weeded-out" by underwriting.
In the case of the type of policy being considered here (paying out if the policyholder remains alive to a given age), self-selection would be made by the "super-fit" instead (these people may have extra information about how their family have all lived to be over 90, never had any instances of cancer in the family etc etc). It is simply more difficult to "underwrite" against the super-fit than it is against "impaired lives". So the insurer's population (instead of being "controlled" by underwriting to be similar to the "standard population" modelled by their mortality tables) may easily end up with a much higher proportion of "super-fit", and hence the pricing will have been wrong.
In message , Stephen Burke writes
As I understand it, the mortality tables and therefore the cost of Immediate Purchased Life annuities is different from compulsory purchase annuities because the data population results in different mortality. The compulsory purchase annuities are bought by people who were thinking they were healthy when they bought the pension, not the annuity. Also, Immediate purchased life annuities have a formally declared 'capital element' which is generally fixed and is the same no matter who the provider is, only the interest element varies.
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