Philip Brown, who has the title of Head of Retirement Products at Partnership Ltd, a leading enhanced annuity provider, has some essential tips to help consumers secure the best retirement income. He suggests that one of the most valuable roles an independent financial adviser (IFA) can play is in helping their clients make the important transition from accumulating (or saving) their pension pot to transforming it into a worthwhile retirement income.
As a process this does require careful consideration because the decisions taken can literally dictate a standard of living for the rest of one’s life. Regardless of efforts by both the Financial Services Authority (FSA) and the Association of British Insurers (ABI), it is still the case that over 61% of over-55′s still don’t realise they can take arrange a better retirement income on better annuity rates with someone other than their original pension provider.
While pension companies are now obliged to really make this choice clearer to retirees, they still tend to present their own pension annuity contracts as the simplest choice and least painful option at retirement. On top of this IFA’s should make sure they are told about any lifestyle or medical conditions a client might have as the client might be entitled to increased rates via an enhanced annuity contract. This is not a niche market but analysis suggests that 40% of annuitants could qualify for an enhanced rate. To help IFA’s, the UK’s leading enhanced providers have agreed a Common Quotation Request (CQR) form providing all the key health questions to ask clients.
And, as an annuity is perhaps the only financial contract where a client being in poor health can work to their advantage, it really is worthwhile getting everything disclosed. Very important if the client might have a medical condition that requires additional medical verification.
Lastly, an IFA should take time to work with the client to identify and balance immediate income requirements sensibly against the potential benefits of opting for an escalation annuity and/or spouse’s income. The different options available can seem confusing but are well worth explaining. And, with interest rates pretty much at historic lows and pension annuity rates well off their highs seen in the middle of last year, retirees may be tempted to delay their purchase. However, if a 65-year old man were to defer his purchase just one year and his pension pot increases by around 6% in the interim, calculations suggest it would take almost a decade to recover the income he missed out on.