How to get the best annuity rates
With headlines such as ‘millions hit by scandal of pension rip off’ in the Express and the front page of the Daily Mail ‘Annuity rates are now so bad you’d have to live to 90 to get value for money’ it would be safe to say that Annuities are not getting good press at the moment.
As is often the case, these headlines sensationalise the real issue which is that people who are going for low annuity rates are getting poor value for money. However, Annuities are a necessary evil for many retirees as they offer a guaranteed income for life which is no bad thing. To avoid getting caught out by poor value annuities, follow these six steps that I’ve put together to help maximise your annuity income.
1 – Don’t roll over! Shop around for the best annuity rate, your pension provider at retirement will send you a letter offering a few alternatives with their own preferred annuity provider, don’t accept this quote and go to the open market to look for a better deal.
The Association of British Insurers recently published rates offered by its members for a 65 yr old smoker. whereas the Scottish Widows was not but it shows the differences.
2 – Get specialist advice, use an IFA to search the Open Market for you, they can help you get the best rate from the providers out there.
Otto Thoresen, The Director General of the ABI said; ‘Shop around and get advice…It is true that there are complex assumptions involved when a provider turns a cash sum into an income for life and the result is not straightforward.’
There are 15 different options when it comes to cashing in your pension and unless you know them all then you will need an adviser to help understand which is right for you. Advisers have access to annuity providers that don’t deal directly with the public, plus statistics have shown that people who used an adviser got 16% more income than those who go it alone.
3 – Disclose all your health circumstances, a specialist ‘At Retirement’ Adviser will go in to your health information in great detail and this is where your rate can change dramatically. The difference in income from a healthy person to someone with a few illnesses is staggering so should not be overlooked, see the table below for an example
4 –Your job and lifestyle also affect your income. Having high blood pressure alone may not provide an uplift in income, but high blood pressure combined with a stressful job, such as a teacher, can increase your .
5 – Once you have got your quotes a skilled adviser can usually negotiate a few more pounds out of the rate. The annuity companies want to make sure they get your business so there tends to be some flexibility. You would be surprised what a seasoned negotiator can achieve!
6 – When you are ready to turn your pension in to an annuity get it done as quickly as you can. Rates can change, pension funds can go down – these factors can lead to a small change in annuity rates which could make a big difference over the course of your retirement.
Lastly, it is worth pointing out that the annuities market is a complex one. To make sure you get the best income available you should always use an adviser to navigate this difficult terrain – you don’t want to be ruing the wrong annuity. After all it’s a decision you’ll live with for the rest of your life.