When it comes to arranging your retirement income, don’t expect loyalty from your annuity provider, the company you’ve saved with over the years. It’s extremely unlikely that they’ll offer you the best annuity rates, and therefore the highest retirement income, when you come to retire. Yes, someone forgot to tell these annuity providers – the insurance companies – that loyalty deserves to be rewarded. Unfortunately, if you stay loyal to your insurance company it’s likely you’ll pay a heavy price for that loyalty, as you would if you stayed loyal to your mortgage company, credit card provider, car insurer, savings company or pension company. Loyalty just doesn’t pay.
Perhaps the worst time financially to show loyalty to an insurance company is when you buy an annuity for your all important retirement income – the income for life that you purchase with your hard saved pension fund. Around 70% of retirees simply take the annuity offered by their existing insurance company. However, this misplaced loyalty at retirement could cost you tens of thousands of pounds of lost retirement income, says Andrew Tully, of enhanced annuity specialists MGM Advantage. He states that when people retire they have absolute freedom to buy an annuity from any company that offers them the best deal. The difference between the best and worst standard annuity rates and the best enhanced rates can be significant, in some cases over 50%, so this is a really crucial issue.
Most people simply don’t realise they can shop around at retirement for the best annuity rates, a process known as using the open market option, and by utilising the open market and shopping around, you could get an extra £10,000 of income over the course of your time in retirement for each £50,000 of your pension fund. If you have £100,000 saved in your pension fund, you could get an extra £20,000 in terms of total retirement income, Tully suggest. However, if you suffer from certain medical conditions, if you smoke or if you’re obese, you might get a much higher retirement income from some insurance companies. If you don’t disclose any medical or lifestyle conditions when you’re looking to buy your annuity then there’s every chance you’ll miss out on a higher retirement income.
