Buying an annuity is a major financial decision, and one which will have a major impact on your income in retirement. For the average man or woman on the street, the technicalities of buying the right annuity, and the jargon attached to pensions and annuities, can be deeply confusing. Once you have bought an annuity, there’s no going back or changing your mind, which puts even more pressure on you to get it right. So here are some key tips to guide you through the process:
- · Shop around. Compare what is being offered by the key players in the marketplace – easy to do now that we have the internet – as you can increase your income by anything up to 20% by making the right choice. Remember that with most pensions you have an open market option: you are not obliged to accept the pension offered to you by your pension provider, but can take your built-up fund to another provider to gain a higher annuity rate, if that is what you are looking for. The Money Advice Service offers annuity comparison tables to help you make your decision, and some providers have informative websites. Offering a guide through the jungle of terms attached to pension annuities, this ‘at a glance’ overview of the key factors involved is well worth a read.
- · Plan ahead. Be realistic about your retirement expectations, and the level of income that you need to maintain your quality of life. All this will be important information to share when you get to the next step…
- · Get advice. The Financial Services Authority has a range of informative booklets on annuities and pensions, and you would also be wise to consult a financial adviser to discuss your long-term needs and future plans with them. Talking to an independent financial adviser will provide you with an overview of the market, and remember, they must offer you the choice of paying by fee, commission or a combination of both. Make sure that you provide them with all the necessary information on yourself, your plans, and your circumstances. If you have health issues, for instance, you may be eligible for an enhanced annuity. Discuss whether you want to build in extras to your annuity. You can, for instance, choose to index-link your annuity, or decide on a survivor’s pension.
- · Compare and decide. Hopefully, you will now have worked your way through the jargon, have calculated your minimum required income, and be well-informed about the options on the table. The final stage is completing the annuity application form for your preferred provider. Happy retirement!