The bad news is that annuity rates keep falling, around 7% in the last year. Annuities are basically insurance contracts in which you hand over your pension fund to an insurer in return for an income for life. The rate you'll receive are determined by two factors, gilt yields and life expectancy. And it's been a double whammy for the last several years with interest rates falling combined with general life expectancy rising.
At present a £100,000 pension pot will pay somewhere between £5,000 and £7,000 a year guaranteed for the first 5 years which is a further fall of around £500 in the last 9 months. In fact this has caused some to postpone their retirement in the hope that annuity rates in the general will rise but with interest rates set to fall this can be a dangerous game to play.
So How To Get A Better Annuity Rate?
Follow these simple rules and it's possible to get a far higher paying annuity
- Do your research into the product, make sure you find out all the information you can especially as the finance companies love to sell products of 'less value' to uneducated clients
- Shop around because the open market option gives ALL savers the right to approach any insurance company for an annuity and NOT just the company that is running your pension, this can often boost your income by up to 33%!
- If you have a large pension pot the you could consider annuities that are linked to the stockmarket often called 'with-profits annuities' - note here that any investment linked annuity will not pay a fixed income but if the investments perform well then the income is likely to be higher than a fixed annuity but unfortunately vice versa for an underperforming investment fund
- What's your health like? Annuity rates are always a lot higher for smokers and/or people with known medical conditions
- Seek professional advice, but note that annuities are a specialist sector. It may therefore be sensible to visit annuity brokers to see what they can offer
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