Annuity Buying Decisions
There are some important issues for consideration when planning your retirement income and buying an annuity. You do have choices, and it’s important you know what they are.
Retirement options
- hesitancy in making a decision,
- buying an annuity now,
- alternatives to buying an annuity now, your retirement options,
- examples of actions you could take,
- conclusion about your various retirement options.
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 type of annuity, which annuity options, and details of any alternative retirement contracts which might be available to you, and their suitability.
If you want to start taking an income sooner rather than later or you want access to your tax-free cash early, before you start drawing an income, there are products which could meet your needs.
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
If you are going to be buying an annuity now, use your pension fund wisely and shop around for the best annuity rates. As average annuity rates for conventional annuities 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 certain medical or lifestyle conditions, you could be eligible for enhanced annuity rates and a higher retirement income.
Alternatives to 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 £500,000, 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.
Your retirement income
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.
