A new report highlights retirees’ annuities ignorance. There is some evidence that retirement savers are in the dark over pension annuity payouts, with 20% of those planning to retire within the next five years admitting they have no idea of the annuity income they will receive. The research conducted by Metlife Europe Ltd also revealed that around 30% of personal pension savers are also unable to estimate how much a pension annuity will pay out.

Further, the reaearch revealed that around 18% of men aged 60 to 64 and women aged 55 to 59 believe their annual annuity income will be £9,000 or more with 3% expecting more than £15,000. MetLife has warned there is a growing gap between expectations of an annuity income in retirement and the real levels of gross annuity income savers will receive.

With the current stock market volatility and the worldwide financial uncertainty we are witnessing people can perhaps be excused for not knowing. However, the harsh reality is that people who expect their £100,000 pension fund to provide an income in excess of £9,000 are heading for severe disappointment and anyone expecting more than £15,000 from their annuity will have to radically alter their retirement plans.

What’s the conclusion here? Get real about your retirement annuity expectations.

This is a rarity; a new pension annuity provider. Hodge Lifetime launches a guaranteed annuity product. They previously offered only equity release plans.

Their annuity will be available through the specialist online portal Annuity Marketing Services. Applications and quotations for the annuity product will be available online, with quoted rates guaranteed for 14 days. They have a minimum amount of £10,000 rising to a maximum pension pot of £100,000, and up to three funds can be combined for the purchase providing the total meets the overall fund requirements.

The launch of the new guaranteed pension annuity is the first product outside of their equity release offering. They hope to satisfy demanding advisers with clear and open product presentation, competitive annuity rates, efficient application process and fast and secure administration. 

Hodge Lifetime’s use of technology takes them to the forefront of efficiency and service and they are clearly committed to developing their offering over time.

You do have options with your pension annuity purchase when you retire. It is likely that your income needs are going to fluctuate over the next few years and, when you retire, your household income will drop.

And, when you retire what about risk-taking? Probably not with the state of the markets at present.

What about your state of health? Might you qualify for increased annuity rates via an enhanced annuity or an impaired life annuity? These things need to be considered, especially when you are planning your retirement finances.

We have an issue with longevity; people are living longer these days, but they don’t always spend that time in good health. If you were to get ill later on in retirement, you could end up qualifying for enhanced annuity rates then. It’s a big consideration for people in their 50s and 60s now who are thinking about buying a pension annuity. Very often they will be in good health and so will be offered ‘healthy life’ rates.

Your health could deteriorate later on in retirement? You can’t go back and re-negotiate your pension annuity terms. If you are concerned about this you could consider fixed term annuities. These plans offer a guaranteed fixed-term income and a guaranteed return at the end of the plan term. Unlike a lifetime annuity, you are not tied in so you can look around at other options at a later date when the plan comes to an end. You can also choose your annuity income level at outset, between £0 and the maximum allowed by current legislation. This is around 20% higher than a typical lifetime annuity rate.

So, it goes to show, there are options around. For a more comprehensive analysis seek advice.

There is the possibility that some pensioners could find it impossible to release their pension benefits when the Government changes the minimum pension age from 50 to 55 in 2010, according to Hornbuckle Mitchell.

They say that people who are considering retiring early at age 50 or those already taking their pension benefits through a phased retirement arrangement (as opposed to a pension annuity) need to take action to ensure that their plans for retirement plans are not affected by the change. Customers using phased retirement, which involves splitting the pension fund into segments, who turn 55 after April 2010 could end up facing additional charges.

They add that any pension income from vested segments from a phased retirement arrangement can continue to be paid. But no new drawdown will be allowed from unvested segments until the retiree reaches age 55 or unauthorised payments charges will apply. To avoid these charges customers should consider unlocking other segments early or risk being locked out of access to their pension income until they reach age 55.

At the moment anyone aged 50 or more can take tax-free cash from their pension, but on April 6 2010, the age limit will rise to 55, and this could impact on someone who had run a pension mortgage, planning to use the tax-free cash to pay it off in their early to mid-50s, for example.

The message is clear; if you are likely to be affected by the rise in pension age to age 55 you should ensure you take steps and don’t end up with large liabilities and no way to pay for them when you reach 50.

A case to look at: Mr. M. wants to move out of his parents’ house into his own home in London. He is aged 25. Until he clears his £5,000 debt, he is not moving. He also has plans for his retirement.

He earns £27,000 a year, with monthly outgoings of £500 in tax and national insurance, £80 in regular savings, £220 to his parents, £360 in travel expenses, as well as around £1,100 a year on sunshine holidays. He owes £3,500 on credit cards and £1,500 on utility bills. No pension provision. He has around £3,000 in an ISA and £3,500 in a share-save scheme, and no mortgage.

What should he do? Well, clear his debts first. Then start keeping track of money being spent. Always shop around for the best deal on any insurance or utility bills, or mobile phone tariffs.

Mr. M. expects to have an initial bill of over £1,000 for his rent and deposit in London. Maybe he should delay his move by a few months to give him more time to maximise his debt repayments and build up his savings. Get himself in a better position.

And here’s the real part of this; Mr. M. hopes to retire at 70 with a pension fund of £500,000, which he hopes will last him 15 years in retirement. But he has no retirement savings and doesn’t understand what is available to him.

This fund of £500,000 for retirement is the equivalent of a gross income of around £17,000, which could cost around £460,000 in today’s money, if he plans to buy a pension annuity which will pay out a monthly income until he dies. To achieve this he needs to make contributions of around 20% of his pay, the equivalent of £400 a month gross, with tax relief he would pay £320 a month.

And that’s the point. Here’s a young lad with plans. To achieve his aims he now knows how expensive it could be.