A recent survey showed that 2/3rds of people buy their annuities (pension income) from the same provider with whom they built up their pension.
By exercising your OPEN MARKET OPTION and shopping around you could increase your retirement income by up to 40%!
Different providers offer different features and benefits and every case is unique so there is no short answer as to which company is best for you. Money Matters has access to all the UK annuity companies and we can guide you to whichever one is best for you!
Whether you are considering investing a lump sum in a purchased life annuity or whether you are looking to make arrangements for creating income in retirement through annuity purchase, it is vital to shop around and find the best annuity and the best annuity provider for your circumstances. Money Matters will be able to assist you in reviewing your financial circumstances and direct you towards your best options. Ask yourself the following:
These are just some of the things you need to consider and it is important you get it right at the start because once you have 'bought' your annuity you cannot change this. This is where Money Matters can help. We can advise which annuity is best for you and your particular circumstances and then shop around for the best rate. After all even if there is only a few hundred pounds a year difference it might as well be in your favour!
Money Matters breaks down the jargon to help you understand and we have been doing it for years so let us help you find the best income for you.
An annuity is the name for the income producing investment product that is used to convert your pension fund into an income. It provides a regular income in exchange for a lump sum (most likely your pension fund).
When you reach retirement you have to convert the capital built up in your personal pension policy or with additional voluntary contributions (AVCs) into a regular pension which gives you your retirement income. You can take up to 25% of your pension pot as a tax-free lump sum, the rest is usually converted into an annuity.
You may choose to have a Single Life or a Joint Life annuity - Joint life will provide your partner or spouse the income should you die before them.
Guaranteed period is also one of the options - you can select the annuity to be paid to you and/or your spouse for 5 years or 10 years - irrelevant of what happens to you.
The With Profits Annuity combines the payment of an income for life with the potential for growth as well as protection from inflation.
Your fund will be invested in the insurance companies With Profits fund.
You are asked to set the Assumed Bonus Rate (ABR/BAR) level for a With Profits Pension Annuity. Effectively, you are being asked what bonus you expect to be declared from the With Profit fund at the end of the year. The normal parameters are between 0% and 5%.
When setting your ABR the company will pay you this bonus in advance, throughout the course of the first year. If at the end of the year the bonus rate declared is the same as your assumption, then for the 2nd year your income will be broadly the same.
If the bonus rate declared at the end of the year is lower, then the company need to recover the additional amount they have paid out and will reduce your 2nd year’s income. The opposite is that if the bonus is higher than expected then your 2nd year’s income will increase.
The higher your ABR, the higher your first year's income. Conversely, the lower the ABR, the lower the initial income. However, the lower ABR creates a bigger potential for increases in future years. For example, on a bonus anticipation rate (BAR) of 5% it would give you a high annuity now.
Your income will be linked to the performance and subsequent bonuses declared by the With Profit fund.
Enhanced annuities may be available to people who suffer from certain medical conditions or because of a lifestyle consideration. The medical conditions covered do not have to be serious and even if you suffer from a minor medical condition (or have a family history) you are probably eligible for a higher annuity rate. Lifestyle considerations such as smoking, alcohol consumption and even which part of the country you live in can affect your rate!
Normally full medical details are required in order to obtain enhanced rates, and for this reason it usually take slightly longer to obtain quotations. However the increased income can make the extra effort well worthwhile, even for quite small pension funds, so please contact us for further details if you think you may qualify.
Income drawdown is a modern alternative to annuities. You don't have to buy an annuity when you retire - you can choose to keep your money invested and take an income from the fund in the meantime through income drawdown (also sometimes referred to as taking an 'unsecured pension' or 'pension fund withdrawal').
At any time after age 55 you can also choose just to take your tax free cash lump sum and leave the rest of your fund invested until you need the income. Once you have taken your tax free lump sum you can start to draw income at any time after that
With Income Drawdown the amount of income available is reviewed every three years at which point it will be based on your fund size and age and then set for another three years. The main drawback of Income Drawdown is investment risk and it is generally for people with larger funds or other sources of retirement income that may be willing to take a higher degree of risk.