"Ronald Raygun" wrote
I think the above applies more for higher rates of return; for lower rates of return, it could turn the other way around [also, again it applies more to younger ages - older people will find annuities probably pay out more] :-
If underlying returns are 10% (say), then if you have 1000 capital, you could invest this to provide 100pa for every year into the future (including after your death). Now, if you are going to live for a very long time (ie you are young) then the pure annuity rate (just allowing for mortality, without any expenses/profit involved) will provide only just over
100pa - which when reduced by expenses&profit could easily be below 100pa as you say.However, now suppose that underlying returns are 3% (say). Each 1000 invested provides just 30pa. You'd need to live for well over 33 years to see a better return on that than buying an "expenses/profit - free" annuity. Even if you allow 10% of purchase price for expenses&profit, then the annuity factor would need to be over 30 to get less than 30pa from the "competitive" annuity - which for anyone aged even 40+ is extremely unlikely.
For anyone over the age of about 70, the annuity factor is likely to be less than 10 under any circumstances - even allowing for expenses&profit. So you'd need a market return of at least 10%pa to keep up.
"Ronald Raygun" wrote
Well, the usual investment strategy by the annuity company would be to try to invest in "matching" fixed-interest gilts (or possibly IL gilts for an IL annuity) - if they can find some with a suitable term etc. Given that this is possible (gilt terms being available up to 30 and not many annuitants living longer than that), the annuity price would be calculated based on the returns on those gilts - which (when held to maturity) is of course guaranteed.
Hence not (necessarily) any risk to the annuity office.
Yes - as I said in my earlier post, "the only benefit of a pension policy is the tax-free lump sum - the one that some commentators say the government should remove(!)".
I doubt it. The TFLS is (I believe) the best concession for pension policies (at the moment).