What You Need to Know About Annuities
Posted July 30th, 2012
An annuity is basically a way of using your pension pot to buy a guaranteed income for the
rest of your life. So say you have £100,000 in your pension scheme. That would
enable you to go to a provider and you would use that money to buy a guaranteed
annual income till your clogs pop. Good idea in principle and certainly a good
idea when annuity rates are good. However, at the moment, they aren’t.
Annuities are underpinned by Gilts (Government Bonds). Gilt yields aren’t what
they have been in the past due to the repression of quantitative easing so
therefore, annuity rates will suffer accordingly.
However, there is a little light at the end of the tunnel.
Shop Around!
Many people (around 60%) do not shop around. This means that there are a substantial amount
of people settling for annuity rates given by their existing pension providers.
You can take your pension pot and look for an annuity on the Open Market.
Perfectly feasible and you may find your annual return increasing by up to 20%
for doing so. Not sure where to check? Ask a good IFA to find you the best
deal. Finding clients the best annuity rates is something I have a lot of
experience of.
Enhanced Annuities
Something that many people aren’t aware of is Enhanced Annuities. These types of
annuities give you a higher rate than regular annuities if:
- You are a smoker
- You have been a regular smoker within the last 10 years
- You have suffered from Kidney Disease
- You drink to excess
- You have diabetes
- You have high cholesterol
- You have or have ever suffered with heart disease
- You have arthritis
- You have or have ever been diagnosed with cancer
- You have high blood pressure
- You are obese
- You have asthma
Any one of these conditions may mean you are entitled to an enhanced annuity. In fact,
there are around 1500 different medical and lifestyle conditions that may
qualify you. It’s worth checking out as I would imagine that there may be quite
a few high blood pressure sufferers that wouldn’t be aware that the condition
may mean they can get a better annuity rate.
Guaranteed Protection
You can also add in protection should your bucket be kicked within a certain period of
drawing the annuity. So if you take say a 5 year Guarantee, this means that
should you take your last within 5 years of drawing the annuity, then they
payments will carry on being paid in to your estate for the remainder of the 5
year period.
It’s worth noting though, the more options you add in to your annuity, the lower the rate
will be. More reason to shop around! And more reason to get an expert to track
the right provider down for you!
Image credit: flickr.com/deighleigh.com
