If as a potential annuitant you are asking yourself this question, incredibly you are actually in a minority. However, this is a very important question as it could mean you end up receiving a substantially higher pension income as a result. With around 62% of UK annuities being sold by the incumbent pension provider, more people do not shop around than do. This results in thousands of pounds in missed income not being paid out by UK pension annuity providers. And because once you buy an annuity you cannot change the terms retrospectively, many end up ruing the fact that they did not have all the facts and understanding at their disposal when they were looking for an annuity.
To avoid this situation, it is imperative to make a pension annuity comparison. This can be done in a number of ways…
- Consult your current annuity provider…
This is where you should start your search for an annuity. Around six months before retirement you will be sent an information “wake-up” pack which contains details of your accrued pension fund and the annuity options open to you. These packs are supposed to offer the retiree information about their options and in particular their right to exercise the open market option. However, the standard of these wake up packs varies with some pension providers not emphasising enough the annuitant’s right to shop around.
- Shop around…
We cannot stress enough the importance of using the open market option (OMO) to find the best rates available. There are various ways to do this, you can enlist the help of an independent financial adviser (IFA). However, their fees may put you off using them, especially if you have a small pension fund. One good place to start is by using an annuity broker who should be able to offer useful information, whilst stopping short of full financial advice, which is regulated. Failing that try the internet as there are plenty of informative annuity websites.
- Think carefully…
Whatever you do think very carefully before committing to any particular product. Once bought an annuity cannot be changed. Also, consider your future financial situation, will it change? Although you will be getting your hands on the tax free lump sum, that money will not last forever. Prices and inflation generally rise year on year, so you may want to consider escalations. There are also other considerations such as what happens if you die prematurely. Many scenarios like this can be addressed with the multitude of annuity products on the market today.
