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How you can protect your Pension

November 19, 2012

I have often heard it said, and in fact I believe it, buying a house is the biggest financial commitment you can make in your life. However, at the same time andfrom what I am reading, there is also a strong case for picking the right annuity for retirement also.  Amongst other things I could care to mention!

Earlier this year, I read that the Association of British Insurers announced a new code of practice for its members. The idea for this is that the Pension companies who you have saved with during your working life will now hopefully have to treat you more fairly when you cash in your pension pot.

 

 



Reason being is because too few of savers bother to spend the time needed or required to research what the best annuity is for them  — An annuity is the income for life you will get in exchange for the sum that you have built up over your working life or as the experts call it “defined contribution pension pot”.

Many take the view and opinion and only get as far as the page where a box invites you to select and tick for a pension provided by the same insurer you have known nearly all your working life. Much in the same way as you do when it comes to Car Insurance or Home Insurance.  However, it appears that loyalty gets you nowhere and perhaps the worst thing you can do.

It appears that many companies will routinely offer you an average deal, hoping that alike most of their customers they won’t bother looking elsewhere. They will also often make very little mention of certain factors that could bump up the amount you receive.

For example, if you have or suffer with a debilitating illness or are even a heavy smoker, and then tell your annuity provider, you can typically boost your annual payout by as much as 30%. This is because, their research and analysis suggests that you won’t live as long as a non-smoker and so  they can afford to give you a better annuity.

The new code will demand insurers be much more clear and transparent about what’s on offer and available to savers about to retire. This code will include a clear message that you can shop around for an annuity. And better secure rates that are according to your health and  lifestyle.  

The code will also ask that packs be sent out and will also include a list of independent retirement specialists who can if needed help you to find a better annuity deal.

It should also be possible to compare the annuity rate on offer from your pension company with their rivals.

Increasing living costs for today’s pensioners make it essential that you get the best annuity deal possible.

So remember some of the pitfalls for now:

    Complex products and poor communication means that workers close to retirement can miss out on the best annuity – remember this is your income for life that your pension pot buys.


    Some fail to choose an income that rises over time to protect against inflation, one that provides for a husband or wife after their death or an annuity that pays a higher income because of their bad health.


    Not shopping around can sometimes stop you from finding the best deal, rather than taking an offer from your existing pensions company.

 

Most women do lose out if left on their own. Older women are at risk in retirement because of the annuity choices that their husbands and partners make, as women rely on their husband or partner’s income in retirement. As many women only have modest personal State and private pensions, which can leave them vulnerable to any drop or decrease in their income, should their husband or partner die first. Additionally, the income on a joint annuity might be less than on a single annuity.