We talked in an earlier article about the advantages of sticking with an older pension scheme if it included a guaranteed annuity rate as one of its benefits. However, nothing is ever free so there is the odd catch. Always check the small print, but here’s what you are likely to find:
Restrictions on taking the income
You can usually only take your retirement income as single life. That’s not great if there are two of you as the income will not be provided to your spouse after your death
Inflation
Many guaranteed annuity rates will not increase with inflation or annually, they might be flat rate only. With increasing life-expectancy, you’ll need to weigh it up – you might be better off taking an increasing annuity at a lower rate on the open market. You should always shop around to make sure you get the best deal
When to take them
Many guaranteed annuity rate schemes are made so you must take them at retirement age. This could be an issue for you if you were planning to retire earlier or later
Lack of guarantee period
Your GAR may not give a guarantee period. In most cases, when you buy an annuity on the open market, they give a guaranteed period that they will pay out for regardless of whether you survive that period or not. Some guaranteed annuity rates don’t give this. This might not bother you personally, but if you are thinking of your survivors, you might want a guarantee period. See our earlier article about Guarantee Periods for more information
There are many factors to take into account when deciding what to do, which is why pensions and annuities are such a complex subject that people tend to shy away from. However, it’s one of the most important decisions you’ll make, so you need to consider every option and take financial advice if need be.
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