In a Tough Market, are Annuities Possible or Desirable?

The amount of funds a 65-year-old man needs in his pension in order to purchase a £5,000-a-year income in retirement has risen by 29 percent since 2010, according to figures from the Office for National Statistics. If you’re a man and you reach the state age of retirement in 2013 you’ll need a pension fund of £152,800 in order to buy a £5,000-a-year annuity. For women, the cost of buying the annuity has increased by 14 percent. Considering this fairly bleak picture, is it still advisable to purchase an annuity? What can you do to ensure you are making the best decision regarding your pension plan and annuity?

What is an annuity?

An annuity is a financial contract you can take out for your retirement years. When you buy an annuity you are purchasing an income for life against your pension fund, which life insurance and pension providers sell. Annuities give you a guaranteed income on a regular basis for the rest of your life. You need to buy an annuity before you reach the age of 75 and you can continue working if you want to.

You need annuity advice when deciding which policy to buy

Considerations when buying an annuity

The cost of annuities may be getting less favourable for the consumer but it is still a valuable option to have a regular income for life. The most important thing to remember is that not all annuities are the same. In order to get a good deal in a tough market you need to know what you are doing. You do not need to take the annuity that your pension provider offers. You can choose an annuity provider from the open market so you can shop around for the best deal. The annuity rates vary depending on which provider you choose.

Different types of annuities

Getting the best deal also depends on getting the right type of annuity for your needs. Certain annuities may not be suitable for everyone. In a tough economic market it is important to maximize your benefits and avoid the pitfalls of the wrong policy.

Standard annuities are calculated based on your age and the economic conditions. A level annuity pays the same income for life, an escalating annuity increases by a certain percent each year, and an indexed annuity is linked to an index.

Enhanced annuities are purchased most by people with health conditions such as cancer or heart disease, or by people who live an unhealthier lifestyle (smokers, in particular). You get a better rate than standard annuities simply because your life expectancy is not expected to be as high.

Investment-linked annuities go up and down in line with the current investment and market conditions. You buy an investment-linked annuity to tie it in with other equity-linked investments. A fixed-term annuity gives you a guaranteed income but the income is not for life, but for a fixed term.

If you are ready to make the most of your pension fund you need professional annuity advice. The market may be challenging for investors but there are always benefits to be found from getting your pension fund to work for you. With professional assistance you can learn how to gain from annuities and your pension pot.


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