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.