Choose the right annuity and secure your best retirement income
Rising annuity rates will be welcome news to everyone approaching retirement especially as savings rates are stuck at rock bottom. Yet inflation remains high at 2.7%. Rates on these products, which convert your pension pot into a guaranteed income for the rest of your life have increased by 6% in the 3 months to the end of September 2013, according to the latest MGM Advantage Annuity Index. For more information on this, please click on: http://newsroom.mgmadvantage.co.uk/ Annuity rates have seen a steady improvement this year with rates hitting a 2 year high according to MGM Advantage.
The average annuity today would pay 11% more income than the equivalent annuity purchased 1 year ago. How are these rates set? A major factor in determining annuity rates is the income yield on Government bonds (Gilts). However, whilst rates have risen this year, Gilt yields have fallen again in the past month. As the consumer, it is up to you to ensure you compare what the other providers can offer you. To ensure YOU get the best deal possible. If you are approaching retirement now? According to other research, if the UK economy continues to recover QE (Quantitive Easing) is likely to be stopped sooner rather than later. This should result in annuity rates rising further more. On the other hand, whilst those looking to purchase an annuity might consider delaying their purchase with the hope finding an even better rate in the near future it is believed that there is no guarantee that rates will rise significantly. Therefore, if you can afford to delay buying an annuity you should also accept the risk that rates may indeed fall, and not rise. Shop around When it is your time to convert your pension pot into an income for life, it is absolutely essential that you shop around to try and get the best deal and value for your money – rather than just simply settling for the rate offered to you by your existing pension provider. The reason to shop around has become all the more clearer after the Association of British Insurers (ABI) opened its “annuity window” in August 2013 showing example rates offered by more than 20 different annuity providers. For more information on this, please click on: https://www.abi.org.uk/Insurance-and-savings/Products/Pensions/Annuity-rates As I said earlier when it is time to convert your pension pot into an income for life, it is absolutely essential that you shop around to try and get the best deal and value for your money. You can do this by exercising the “open market option”. For more information on this, please click on: http://www.which.co.uk/money/retirement/guides/annuities-explained/buying-an-annuity/ For more information on this, please click on: http://www.rosaltmann.com/annuityOMO.htm Shopping around for your annuity will ensure you get the best possible deal and can improve your pension income. Under a new code of conduct launched in March 2013 by the ABI, pension providers are now required to stress the importance of shopping around in any information or correspondence sent to those approaching retirement. For more information on this, please click on: https://www.abi.org.uk/News/News-releases/2013/02/Abi-Retirement-Code-Will-Help-People-Get-Best-Pension-Deal Ensure you get the right annuity If you smoke or have a health or lifestyle condition that could affect your life expectancy, you may be able to qualify for a better rate by purchasing what is known as an “enhanced annuity”. For more information on this, please click on: http://www.which.co.uk/money/retirement/guides/annuities-explained/enhanced-annuities/ These rates are better as the provider will not expect you to live as long and so they will not have to pay out for as long. As you will find out using the above link, Which? reveals that currently only 16% of those eligible for an enhanced annuity actually buy one and so miss out on a potential 47% boost to their pension income. You should also consider options such as a joint-life annuity, which pays out an income to a spouse if you die first, or an escalating annuity, where the income paid rises each year to protect against inflation. For more information on a joint-life annuity, please click on: https://www.moneyadviceservice.org.uk/en/articles/individual-or-joint-annuities For more information on an escalating annuity, please click on: http://moneyfacts.co.uk/guides/retirement/what-is-an-escalating-annuity160211/ In addition, you may want to look at income drawdown, where you keep your pension invested with the option of taking income from it – although there are or at least can be caps on how much you can withdraw. For more information on Income Drawdown, please click on: http://moneyfacts.co.uk/guides/retirement/what-is-income-drawdown160211/ http://www.hmrc.gov.uk/pensionschemes/pen-options.htm To ensure you consider and understand all the options that are available to you, it is likely to be worth paying for some financial advice. As you could end up with a higher retirement income by following this advice than if you made an uneducated decision yourself. As once you have made the decision, there is no going back.