There are concerns out there about retirement in general, but also in respect of the annuity rates on offer. Many of the people who had the foresight to set up a pension scheme in their early working lives are getting a surprise when they come to retirement because their annuity income is not as large as they expected. This could be because they have not had their pension arrangements reviewed on a regular basis, and this is very important as individual circumstances do change and in recent years in particular the pension legislation has changed considerably.
A pension arrangement has two main stages; the first is what is known as the accumulation stage which is when the contributions are being made into a pension fund, and these contributions should be reviewed on certain events, say, marriage, children or divorce. The contributions are invested into mainly stockmarket investments. The stockmarket is naturally affected by the credit crunch and is currently very low.
Regular reviews would help to preserve the value of pension funds. Reviews are important at any time but really important within five years of retirement age. During this period the investment strategy should be changed on a phased basis to lower any inherent risk which is then not so subject to the fluctuations of the stockmarket. Two years ago, stockmarkets were much higher, and this phasing would have helped preserve the value of pension funds and there would have been a larger pot available with which to buy an annuity.
The second stage of a pension arrangement is decumulation, actual retirement, when instead of paying in money, you are taking out the benefits. The post war year “baby boomer” generation everyone talks about is now coming up to retirement and this could unfortunately very well be the worst time for so many people to come to retire, not only because of the low stockmarket values, but also because of the fact that pension annuity rates are low.
Some clients are being advised by their advisers that they defer their annuity purchase and their retirement plans for a few years if possible to give the markets time to recover, but this is not always a possibility and besides people do not always really want to work on past the age of 65. But, if you are about to retire all is not lost, the actual pension annuity does not have to be taken from the pension company that provided the contract that the contributions were paid into. It is possible to shop around for the better annuity quotes utilising the open market option (OMO).
In addition, if you have ill health issues, even for such common things as, say, high blood pressure and/or high cholesterol, or if you are a regular smoker, often a significantly greater annuity income can be obtained. Enhanced annuity rate increases of up to 40% have been obtained for people with more serious illnesses.
There are retirement options other than just taking an annuity which may be even more appropriate for you, especially if you have a larger pension fund of, say, £100,000 or more. This type of contract allows you to take an income whilst leaving the remainder of your pension fund invested, hopefully with the prospect of an increase in its value over time.
People are no longer old when they reach age 65 and more and more of them want to lead an active retirement. In fact, on average, they will live at least another 20 years and that average age is increasing all the time. The decisions you make regarding your retirement options will affect the rest of your life and, indeed, the quality of your retirement.
