Converting your pension pot into an annuity income is one of the most important financial acts you will ever under take. It cannot be overstated that the decision you take over which annuity to choose will have a profound effect on your retirement income and that of your partner when you pass away.
The key to a stable retirement income is to plan your retirement effectively, which is where many of us seem to slip up. Many of us don’t worry about retirement and shopping around for an annuity until we are on the brink of retirement, despite us knowing well in advance of our impending retirement date. If you are one of the lucky ones who have a final salary pension then you will be guaranteed an income for the duration of your retirement. However if you are one of the millions with a personal pension or other kind of pension, you will have to decide how to best convert your pension pot into an annuity or similar scheme.
Tim Gosden from Legal and General says that “We’ve realised that sending out information packs four to six months ahead of a planned retirement date is too late. People need to have a year or 18 months to start thinking through all their options.’ Other pension experts say that annuity planning should be done up to five years before retirement.
The main problem is that people do not shop around for the best deal, fueled by a lack of understanding from annuitants and a lack of explanation from providers. David Marlow who works for The Annuity Bureau estimates that upto £50m of pension income is lost annually by people not find the best annuity rates. There are dozens of annuities on offer as well as derivatives of these, which is a minefield of jargon for many retirees. The best course of action is to research online or seek professional financial advice.
