Shopping around for the best annuity is vital, we cannot underline this fact enough! It is staggering to find out that 66% of annuitants STILL don’t exercise the open market option, instead taking the first offer from their current pension provider. Why is this? Well, you go with what you know, why don’t more people move banks? Because they either think it will be too much bother, or in the case of pension annuities, they don’t understand the benefit of seeking an alternative provider. You could blame part of this on apathy, but with such a massive potential difference in pension annuity quotes to be had, misapprehension over the potential benefit is the main reason.
Pension annuity quotes vary depending on which company you consult, but there are several points to remember when you are examining offers from pension annuity providers.
-You might be unclear about how pensions and annuities work, so between 4 – 6 months before your stated retirement date you will be sent an information pack stating what your pension pot will be worth. Six weeks before retirement they will reveal what they will offer you in terms of exchanging your lump sum for an annuity. They will also inform you that you are free to shop around for the best annuity rate.
-Don’t make the mistake of wrongly assuming that just because you have built up a pension fund with one particular company that they will then automatically offer you the best annuity rates.
-If you receive money from occupational defined contribution schemes you can ask the trustees to make the annuity purchase on your behalf, or you can instruct them to shop around for you if you so wish.
-Remember you CANNOT change your annuity once you have committed to one particular product.
Before you shop around for an annuity…
i) Does your current pension provider offer a guaranteed annuity rate?
ii) Will you be charged for choosing an annuity from another provider? If so, how much?
iii) Get a quote for the best suited annuity for your circumstances, a standard annuity is not the best option for someone with health problems for example.
iv) How long is the quote valid for?
When Shopping around..
i) Estimate the value of your fund (including any charges)
ii) Are you taking a cash free lump sum? If so deduct this from the pension fund value (max 25%)
iii) What type are you getting, single, joint, escalating, enhanced etc
iv) Do you want guarantee periods, such as five or ten years…
v) Will your pension pot size qualify you for deals offered by other providers?
vi) Do you smoke? Some providers specialise in offering smoker rates.
vii) What, if any, medical conditions do you have? This can also help with impaired life annuities, as some companies specialise in offering rates for smaller pension pots.
Using these tips, you should now be able to shop round for an annuity with confidence. In all circumstances, seek the advice of an Independent Financial Advisor.
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