The best enhanced annuity rates should be available to all, and not just a select few. Independent pension consultant Dr Ros Altmann says that most people do not know how to find either the right type of annuity for their own circumstances, or the best annuity rates. Around 40% of people could qualify for enhanced annuity rates, but less than 10% actually do so. She added that without an adviser, people are unlikely to achieve the best annuity rates, but there is no requirement to ensure retirees have actually received any advice at all. Ms Altmann believes it is time the regulator acted to prevent insurers offering a default. She thinks that the FSA should make it mandatory for anyone selling a pension annuity to ensure that the purchaser has considered the most essential questions before they buy and lock into an irreversible important financial decision with their life savings.
The Pensions Income Choice Association (PICA), a group of retirement income advisers, likewise believes that retirees should have to answer questions before being sold a pension annuity. It has calculated that the current default option will cost retirees around £3.3 billion in lost annuity income over the next 20 years. Separate research by Saga found that the average retiree could be up to £300 a year better off if they did not have the default option to fall back on. Getting the best annuity rates would certainly help a lot of people in retirement.
At present, the vast majority of annuities bought are single premium and level term, states Ms Altmann. It might, however, be more appropriate for a retiree whose spouse does not have a pension fund of their own to opt for a joint-life annuity, which would ensure a continuing annuity income for the rest of their spouse’s life in the event of their premature death. Rather than the default level income annuity, it also might be worth considering an index-linked annuity which helps protect against inflation. History shows that prices tend to go up over time, and inflation of just 3% per annum would effectively halve the value, in real terms, of a level term annuity income after 20 years. People with ill health, including diabetes, or those who have had cancer, can also increase their annuity income in retirement , typically by an average 22%, by opting for an enhanced annuity rates.
