Annuities: Think before you buy Go compare with our comparison table

Annuities: Think before you buy

20 July 2010 / by Lois Avery

Annuities are under the spotlight once again after the Government launched a consultation period to discuss its plans for the future.

Chancellor George Osborne revealed last month, in his Emergency Budget,  that the age at which those looking to retire must buy their annuity would be extended from 75 to 77, with a view to scrapping the compulsory purchase age altogether.

And as part of the reform process, which will give the UK annuity system its biggest overhaul for decades, the Government is encouraging interested parties to get involved and give their views on the proposals.

But with falling rates and new rules experts are advising savers more than ever to carry out thorough research before handing over their savings.

Do your research
Research conducted by the Association of British Insurers indicates that around one-third of annuitants shop around then buy from an alternative provider, one-third shop around then buy from their existing provider, and one-third do not shop around at all and ‘default’ into their provider’s annuity.

Head of pensions and investments at Fair Investment Company Nick Scarrett said: “People need to be better educated about the importance of having sufficient retirement planning in place. It has never been more important to look at retirement planning, and that doesn't just mean standard pensions, there are plenty of options, for example, ISAs, investment bonds, venture capital trusts and unit trusts or OEICs.”

Enhanced annuities

Annuities also take into account your health and overall life expectancy. So if you are affected by certain conditions, or are a smoker, you could get more money every month, based on the insurer’s calculation that you are unlikely to live as long as someone deemed to be in good health.

Annuity experts The Annuity Team also advise pension savers to look at Open Market Options where  even customers with manageable conditions, such as high blood pressure benefit greatly from an ill health annuity.

A spokesman for The Annuity Team said: “Currently, approximately 38% of all completed annuities are enhanced in some way due to lifestyle or medical conditions.

“The lines on an ‘enhanced’ annuity are becoming more and more blurred as the providers are using a mid-way approach on ‘minor’ issues such as high blood pressure, cholesterol or smoking for example.  More serious medical conditions are usually where the specialist providers will be able to offer the highest rate, but for the less serious issues, the traditionally standard providers are becoming more competitive.”

Customers with more serious medical conditions could benefit even more from the Open Market Option by using specialist enhanced annuity providers. 

So why buy an annuity?
Annuities offer certain securities that cannot be matched by other pension saving methods.

Firstly, they allow you to take a chunk of your pension pot tax free. So if you use £100,000 to buy an annuity you can take 25 per cent back tax free and unlike saving into an ISA, which might allow flexible withdrawals, an annuity lets you manage your pension by providing regular income payments.

Also, statistics show that by shopping around savers can get more for their money.

In one case The Annuity Team were able to get one of their customers a 41 per cent increase in their annuity quote by doing the research for them.

They say: “He had been quoted £181 per annum from his pension provider.  We were able to get him £255 per annum. Our evidence shows that the average uplift from the pension provider to an annuity completed with The Annuity Team is 12.8% and certain cases can be a lot higher than this.”

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© Fair Investment Company Ltd

ProviderAnnual IncomePayment TermsPurchase AmountGet Quotes
£6,950
Monthly income for life
£100,000
More Info >
£6,521
Monthly income for life
£100,000
More Info >
£6,502
Monthly income for life
£100,000
More Info >
£6,372
Monthly income for life
£100,000
More Info >
£6,154
Monthly income for life
£100,000
More Info >
Quotes based on man aged 65, £100,000.00 purchase amount, conventional, level escalation, nil guaranteed period, paid monthly in arrears without proportion. Annuity rates correct as at 22/06/2011.