An interesting fact; UK pension annuity rates higher for men than women. Naturally this is because women tend to live longer than men. On one hand this means that a female retiree will on average enjoy her retirement income for longer than men. However it also means that she will get lower annuity rates. Annuity rates determine what income you get for the hard earned pension fund you’ve built. Insurance companies (the annuity providers) offer lower rates to women because they know, statistically, the income will have to be paid for longer.

However by shopping around you can often obtain far better UK annuity rates than the one offered by your existing pension provider. So much so that a woman who shops around for a pension annuity can achieve a significantly higher retirement income than a man who doesn’t bother. By shopping around for the best annuity rates a 65 year old woman could currently get an annual income of around £6,305 from a £100,000 pension fund. Scottish Widows and Friends Provident are just two of the larger pension providers who would currently all offer a 65 year old male retiree a lower income than this, in one case as low as just £5,796 a year.

There are undoubtedly many other insurance companies who offer such uncompetitive pension annuity rates, these three just happen to publish their rates on the FSA website. These 65 year old men would compare even less well with men of the same age who shopped around for their annuity purchase, who could thereby expect about £6,710 a year from a £100,000 pension fund. This demonstrates the importance of shopping around for your annuity.

How to go about getting the best UK annuity rates at retirement. First, some background; an annuity is payable for the remainder of your lifetime, although it is possible to select a fixed period if you’re purchasing an annuity with cash rather than with pension fund money. Examples of these types of “Compulsory Purchase Annuity”, as they are known, are conventional annuities, with-profit annuities and unit-linked annuities. Annuities that are purchased from your savings, not from a pension fund, are known as ”Purchase Life Annuities” and “Immediate Vesting Annuities”.

When your pension fund reaches maturity at your retirement, your pension provider will advise you of the fund value and give you some general information about annuities and the amount of annuity income you would receive from them. You are then entitled to use your Open Market Option (OMO). This allows you to transfer the fund to another annuity provider of your choice for better UK annuity rates. This therefore enables you to take advantage of a higher annuity income which might be available from a different provider. You are normally entitled to take up to 25% of your hard earned pension fund as a tax-free cash lump sum. The remainder of the pension fund must be used to purchase an annuity or an alternatively secured pension (ASP), before you reach the age of 75. The conversion of pension fund money into an annuity is compulsory by the age of 75 here in the UK.

Getting best UK pension annuity rates may not always be the answer to individual’s retirement income requirements. It looks like somewhere deep within the recent pre-Budget report notes were a few paragraphs devoted to the progress made on increasing uptake of the open market option (OMO). All those hoping the word progress actually meant signs of success, should maybe think again. 2008’s pre-Budget report update included two pages of information covering a few initiatives and some interesting figures. This time the update was summed up in three short bullet points.

The first point stated the FSA’s online annuity rates comparison tables had received 228,000 visitors in an unspecified time period. The second point briefly mentioned good work done by the Association of British Insurers (ABI) on providing improved customer information and reducing pension fund transfer times. The third point touched on the Pensions Regulator’s report regarding the retirement information provided to defined contribution (DC) pension scheme members. 

The previous years’ pre-Budget reports also mentioned that 40% of those taking a pension annuity from a personal pension plan had exercised their OMO. Of the remainder, about 50% were unaware of their right to shop around which is why the aim to improve information to pensioners regarding the OMO remains so important. A year later and fresh figures from the Association of British Insurers (ABI) provide little evidence that uptake of the OMO is improving. Indeed, it unfortunately remains pretty stable. Perhaps more worryingly it appears that OMO utilisation is far higher among personal pension plan holders than occupational schemes.

The retirement income market is forecast to grow massively over the next five years, to about £23bn from around £14bn in 2008. As the numbers of pensioners increase and the size of average pension funds get bigger, there will be more opportunity for advisers who have efficient systems to handle a wide range of retiring clients in order to benefit from this rapid growth. We are also seeing some major institutions devoting more energy and effort into this developing area which should help spread the message, and encourage retirees to look out for better UK annuity rates.

The Pensions Income Choice Association (PICA), the new industry group, is lobbying for a number of changes at the highest levels (government, for example), and the annuity providers themselves are also sensing that times are very much changing and starting to reposition their own retirement service provision, as we are seeing at Aviva (was Norwich Union) with its interest in offering rival providers’ annuity plans and also at LV= (was Liverpool Victoria) which is putting the finishing touches to its soon to be launched fixed-term annuity.

Anyone who does exercise their OMO at retirement has effectively ruled out, whether they know it or not, the other 90% or so of retirement income solutions that are available to them. As Pica has understood, the retirement income market will eventually start to provide better value when pensioners make active financial decisions about what product or suite of retirement products best suits their individual circumstances, and not just look out for the best annuity rates.

You mustn’t rely on your current pension provider to offer you the best enhanced annuity rates. First, though, it is fair to say that we are now seeing insurance companies trying to develop new ways for investors to convert their hard earned pension funds into an income stream. Buying an annuity is still the most popular option for the majority of retirees, but annuities are undergoing something of a revolution.

Tailored annuities based on an investor’s lifestyle (smoking, weight, etc.) and medical circumstances have become far more common in the annuity rating process, making it imperative people shop around to get the best deal possible. Latest figures show that there is only around a 1 in 400 chance of you being actually being offered enhanced annuity rates by your current pension company.
 
Many investors preferring to maintain ownership and investment control of their pension fund have opted for income drawdown (now unsecured pension) over the past few years. In 2008, almost 20% of all pension funds went into income drawdown, though this figure comes across wrongly because we are really talking here about larger pension funds. These contracts are far more risky than an annuity, with your retirement fund and your income being completely dependent on future investment performance.

There are some alternatives to this, investment-linked annuities, which aim to combine the benefits of an annuity with the attractions of income drawdown, which include maintaining ownership of pension savings, controlling your income and possible inheritance tax advantages. Having said all this, if it is enhanced annuity rates you are entitled to, then that is the safest route to go down. Just make sure you shop around and don’t take what’s on offer from your current pension company.

Retiring this year? Then get the best UK pension annuity rates in 2010. Many people assume that they have to buy a pension annuity from their existing pension company who runs their pension plan. However, this is not the case, as you have the right to shop around for the best annuity rates when you retire utilising the  open market option (OMO). Worryingly, recent figures from the Association of British Insurers (ABI) show that 61% of people buying an annuity in 2007 did not shop around as they should have.

There are significant differences between the level pension annuity rates offered by different annuity providers, basically underlining the fact that you should use the OMO. Discouragingly, a recent survey showed that 2/3rds of people buy their annuities from the same company with whom they built up their pension, and that many people are unaware that they have the right to shop around to find the best annuity rates. This OMO facility really can make a significant difference to the level of annuity income you receive and therefore your lifestyle in retirement.

You can shop around and obtain annuity quotations from all of the leading providers yourself, which will prove a time consuming exercise. Alternatively you can ask a pension annuity specialist to do this on your behalf. Please complete our enquiry form and we will obtain a free quotation for you based on the highest rates we can find for you. Buying an annuity is one of the most important decisions you will ever make as it determines the level of annuity income you will receive for the rest of your life, and you need to find the best UK annuity rates.

It is therefore crucial that you obtain the best level of income from your hard earned pension fund to ensure you enjoy the highest quality of life possible in retirement. Whether you have already decided which annuity you want or you require advice on the most appropriate one, or indeed if an alternative would be more beneficial, we can help you. So, choose the best option and shop around for the best pension annuity rates utilising the OMO and don’t just accept what your existing pension company offers.