Buying Decisions

Potential issues about buying an annuity

There are some important issues for consideration when planning your retirement income and buying an annuity. You do have choices available to you, and it is important you know what they are.

■ hesitancy in buying an annuity
■ buying an annuity now
■ alternatives to buying an annuity now
■ examples of actions you could take
■ conclusion

Hesitancy

If you are being hesitant about buying an annuity the first and most important point is that you take specialist advice. You need to know what choices you have, what annuity types, which annuity options, and details of any alternative retirement contracts which might be available to you, and their suitability; see the annuity guide page for details.

If you want to start taking an income sooner rather than later or you want access to your tax-free cash early there are alternatives to buying a lifetime annuity.

We recognise that many people are putting off making decisions about their retirement in the current financial climate, but this might not be the answer, and doing nothing does not necessarily solve anything.

Your pension fund may well be down in value, and annuity rates might be falling, but if you delay taking action, how long is that delay, and how long might it take for an improvement in the value of your pension fund?

Buying an annuity now

If you are going to buy an annuity now, use your pension fund wisely and shop around for the best annuity rates. As average standard annuity rates have been on the decline for a while, it is really important that you find the best annuity rates for your individual circumstances, and therefore the best retirement income.

Equally, there is a big difference between the best and the worst annuity rates on offer from the various annuity providers, and not securing the best rates can have a huge impact on your retirement income.

It is also worth pointing out that if you suffer from ill health or are a regular smoker you could qualify for increased annuity rates via an enhanced annuity contract, and this could significantly boost your retirement income. You could qualify for these enhanced annuity rates whether you have a serious, or a mild, medical condition.

Alternatives to buying an annuity

You could do nothing just yet and simply delay the purchase of an annuity, in the hope that your pension fund might improve in value, and/or that annuity rates might increase. The issues to consider with this course of action are two-fold; it might take longer than you wish for an upturn in the value of your pension fund, and annuity rates might not increase in the short term. Annuity deferment might not be the answer and you could be better off biting the bullet and buying your annuity now.

There are some retirement contracts available that allow you to start taking an income now, and give you the flexibility of leaving the balance of your pension fund invested in the hope of some improvement in its value over time. See other products for details.

These solutions offers you what is possibly the best of both worlds in the current financial climate, and can save you having to spend what might be a depleted pension fund on a conventional annuity and locking into one rate forever.

Examples of actions you could take

You could take the tax-free cash from your pension fund now, and leave the balance of your pension fund invested, therefore delaying buying your annuity until a later date. There are contracts which allow this and they will give you the opportunity of some improvement over time in the value of your pension fund.

If you have a larger pension fund of, say, over £100,000, an income drawdown arrangement might be better for you. An income can be taken at the outset, and the remaining pension fund can be left invested in the anticipation of some improvement in value.

You could opt for a phased drawdown contract or phased retirement. These plans were primarily introduced for those individuals who wished to retire gradually and ‘phase’ the taking of their retirement benefits. You can either use a combination of income drawdown and tax-free cash to provide an income, or, over time, purchase a series of annuities.

In conclusion

The decisions you make about your retirement planning are extremely important, and specialist advice is crucial to your financial well being.

Should you make the wrong decisions you could lose out on thousands of pounds of retirement income. However, make the right decisions and you could be thousands of pounds better off.

Important footnote

Please note the above comments do not constitute recommendations and there may be other retirement contracts available more suited to your personal requirements.