Choosing an Annuity Provider - get up to 40% more
Buying an annuity is a one-off opportunity – you can’t change provider once you’ve settled on a particular offer – so choosing the right type of annuity and getting the best deal are crucial. There are a wide range of annuity providers available for you to choose from each offering different benefits and types of annuity. The amount you receive depends on how long the annuity provider expects you to live, which gives them an idea of how many years you'll need to be paid for. Insurance companies calculate this using age, whether you are male or female, the size of your pension fund, and your health and lifestyle factors.
Why shop around for an annuity company?
Your pension company will want you to choose its annuity offering, but the law says you don't have to. You can buy your annuity from the company who you took out your pension fund with. However, you don't have to buy it from them. You have a legal right, under something called the open market option (OMO), to buy your pension annuity from any provider, regardless of which provider your pension is with.
Therefore, it makes sense to always check what your pension provider is offering and compare it with other providers in case you can get a better deal elsewhere. There are a number of providers competing.
Not only will different annuity providers offer different rates, they’ll also offer different annuity options. Shopping around means you’ll be more likely to find the right type of annuity that suits you. Once you have purchased an annuity, you can’t change it. Therefore, it makes sense to research a wide range of companies before committing to one provider.
To help you decide what type of annuity to choose, it's best to first think about what your priorities are and what needs you'll have after you retire. Some of the things to think about include:
- Whether you want an income just for you, or for anyone else
- Whether anyone else who is financially dependent on you may need an income if you die first
- Whether you are in good health, and how long you might live
- Whether you have enough income from other sources such as savings or a part-time job to delay starting your pension
- How flexible you want the pension to be, for example, if you want to increase your income as you get older
- Whether you would like to carry on investing in your pension fund after you retire
- Whether you want to provide an inheritance for someone after your death
The rate you are offered will depend on a variety of factors, such as:
- Your age - If you retire earlier, your pension will need to pay out for longer and so you'll get less income each year
- Your life expectancy - This is based on what happens in the population as a whole. An annuity insures you against living longer than average
- Your gender - Women are expected to live longer than men. This means your pension fund needs to last longer so you'll get less each year. This isn't classed as discrimination
- Your health - You may be offered a higher yearly income than someone else if you're in poor health or not expected to live long. This is one of the occasions when poor health or your lifestyle, for example if you smoke, can benefit you
- The economy - Annuity rates are underpinned by gilts, which affect general interest rates, and they can go up and down like any other investment
Points to bear in mind when choosing an annuity provider :
- Research the different types of annuity and decide which kind you want – single-life, joint-life, investment-linked, or enhanced
- Find out what deal your pension provider is prepared to offer – this will give you a ‘base rate’ to compare with other deals on the market
- Use our annuity calculator to see if you could get up to 40% more retirement income
- If you are unsure about which annuity option is best for you, it’s a good idea to seek independent financial advice
To compare a wide range of annuity options and find the one that’s right for you, use the comparison tables below: