This tip is absolutely vital to know if you want to make the most of your pension pot at retirement.
This tip is absolutely vital to know if you want to make the most of your pension pot at retirement.
The new government has pledged to scrap compulsory annuities. But, for many of you, buying an annuity when you retire will still make sense.
What is an annuity?
Annuities convert your pension pot into an income. The annuity company guarantees to pay you a set amount a year for the rest of your life. But they also come with several drawbacks. One of the worst of these is the low annuity rates pensioners are stuck with right now.
The prevailing annuity rates when you retire will determine how generous your pension income will be. In simple terms, low annuity rates mean less income, so your task is to find the most competitive annuity to stretch your pension pot further.
Compare the annuity market
Luckily this is easy to do by comparing the rates on offer from different annuity providers. You could check out an annuity comparison website such as the Annuity Bureau or AnnuitySupermarket.com to give you an idea which company is leading the market. But it’s also a good idea speak to an independent financial adviser who can help you get the highest possible income.
The difference between the highest and lowest annuity rates is huge. Choose the top annuity, rather than the least competitive, and you could end up with 20% more income in return for shopping around.
Specialist annuities
If you smoke, or you suffer from a medical condition, you may be able to improve your income even more with an enhanced or impaired life annuity. These specialist annuities pay extra to people who might not reach normal life expectancy, and can boost your income by as much as 40%.
So, when you come retire, don’t accept the annuity your pension company has on offer without checking whether you can do better elsewhere first.