Annuities - dull? Desperately important. We keep it simple..

In the world of pension planning annuities are a hot topic. It’s not everyone’s burning desire to read about them, so we are going to give you a short series of bit-size blogs to help you understand what you might need to know about them. The next 4 weeks will focus on some of the important considerations that people face in the lead up to retirement and how good advice can help you make the right choices.

Despite what many people say, annuities are not necessarily a straight-forward automatic option. There are a few myths to debunk immediately:

·         Your pension automatically becomes an annuity

·         Annuities are restrictive

·         Annuities are a bad deal

Choice

When you come to retire you have a choice. In fact, you have a huge array of choices and the whole thing can become somewhat overwhelming: do you want an annuity or income drawdown?; a spouse’s allowance?; growth in line with inflation?; a guarantee period?; full tax-free cash? I could go on and on but the fact of the matter is that your retirement decision is not a simple one and it’s often one that you’ll be stuck with for a lifetime. Sound financial advice can ensure that you take the decisions that are best suited to you and are going to serve you and your family well in retirement.

Flexibility

Annuities might not be the most flexible retirement income model (we’ll come on to that in a future blog) but there is certainly a lot of variety to consider besides the traditional ‘bog-standard’ annuity. For an extra price you can ensure that your spouse receives an income after your death or that your income grows every year. If you suffer from poor health or are a smoker you can also qualify for an uplift in the income that you’ll receive – for example, high blood pressure could add up to 31% to your income^*!

A good deal better than you might think

Annuities are getting a lot of bad press at the moment, and rightly so: rates are at near record lows largely due to the current economic climate. Despite this, annuities are still the best option for a large number of people: it is the only way to ensure a secure income for life without any investment risk. In its simplest from, insurers consider the number and lifespan of those who live long lives and those who don’t so as to offer the best rate somewhere in between (minus a bit of profit of course!).

We all hope we’re going to live to 100 but few of us would have the means to finance this if we did!

So that was my whistle-stop introduction to annuities. In the coming weeks I intend to demonstrate a bit further some of the interesting aspects you may be unaware of and hopefully prove that there’s still value in a product that can trace its history back to Roman times! As ever, though, with such an important investment in your future, solid, independent financial advice is crucial to making the right choice for your own personal circumstances.

* Source: HL Annuity Supermarket and Just Retirement, 25 June 2012 compared to lowest healthy life annuity rate