UK households have been urged to “choose carefully” when it comes to pension annuities as the guaranteed retirement income becomes “in vogue”. An annuity guarantees an income at a set rate – but you have to ‘buy’ the annuity from your pension pot.
If you outlive the annuity expectation, you’re getting a good deal – but as nobody can predict that, it can be tricky to know if it’s right for you. Seek independent advice before opting for an annuity. “The stability of a guaranteed income gives retirees peace of mind that their money won’t run out even if they live past 100,” says Lorna Shah at Legal & General, a big annuity provider.
“It takes the guesswork out of budgeting and lets people focus on enjoying retirement.” You can use pension savings to buy an annuity once you are aged 55, so born in 1970 – rising to 57 from April 2028 – under rules from the Labour Party government.
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“Failing to shop around when buying an annuity can easily lose pension savers thousands of pounds,” Just says. “Not all providers will deal directly with you, so you may wish to consider professional financial advice or using an annuity broker,” says Moneyhelper.
Helen Morrissey at Hargreaves Lansdown, said: “This gives you the peace of mind of knowing that your day-to-day expenses can be met and that the rest of your pension remains invested, where it has the opportunity to grow further.
“One option can be to [buy an annuity] in slices throughout your retirement as your needs evolve. That way, you can still get investment growth from your drawdown pot but, as you annuitise, you can also get higher rates as you age.”
When it comes to quotes, Hargreaves Lansdown says 65-year-olds with £100k pots can turn that into an annual income of £7,287 if they went for a single life level annuity with no guarantee period.