ONE of the main reasons for buying a pension annuity at retirement is to secure a guaranteed income which is payable for life.
Given the fragile investment environment at present this is an option which more people are turning to, but there are some important things to be aware of!
Firstly, if you have a UK pension arrangement, you will be offered a range of options from your pension provider.
These will almost always include the ability to exchange your fund for an annuity but here is the first caution; don’t just select an annuity from that provider’s range.
My experience shows that in almost every case, better terms are indeed available on the open market.
Furthermore, if you have suffered an illness or are not in perfect health, enhanced terms may well be available based on your own personal circumstances.
The results of this exercise can be quite staggering, with the actual income available being significantly higher, perhaps even as much as 50 per cent more in some cases.
Don’t forget, the main benefit of the annuity is that you have the certainty of a guaranteed income for life so you need to make sure you maximize the return as you only get one shot at doing that!
I recently met with a new client who had retired a number of years ago and had indeed chosen to take retirement income by way of annuity purchase.
As everything had been in place for a number of years my view was that we simply needed to get clarity of the terms applying to the various annuities that had been purchased.
Of the four companies involved, only one of them had it totally right.
Of the others the discrepancies ranged from one company thinking they were paying one amount but actually paying something quite different, to another which had simply been under paying by 12.5 per cent which over a number of years had amounted to a significant sum.
While they are now paying the arrears with interest and compensation, had this gone undiscovered, this person might never have known that they were being short changed every time a pension payment was made to them.
The moral of this story is to take advice from a professional who has the qualifications and experience to deal with UK pensions, who can act on your behalf to identify the best solution for you and then to ensure that you actually get what you have applied for!
And in an amendment to last month…
Last month, I was looking at investor protection and made reference to the deposit guarantee scheme in Spain being limited to €100,000 shared between joint account holders but in fact, each account holder can have protection up to the full limit as opposed to being restricted. I apologise if this caused any concern.
However, I would question whether holding this amount on deposit is the right thing to do at present with such low interest rates, but that is a debate for another day.