HomeWe are passionate about making sure you get the best possible income from your pension. We therefore thought we would use our experience of the Annuity market to put together a list of questions you should ask your Annuity adviser before you make any decisions about your retirement income.
Five golden rules to help you get a better Annuity – watch now
1. Are you independent?
We would always recommend using an independent adviser who can access a wide range of providers.
Make sure your adviser is independent; ask to see their research to satisfy yourself that they have considered a wide range of options and providers.
2. What other options might be right for me instead of a Lifetime Annuity?
There are many different types of Annuity, Enhanced, Fixed Term, Investment Linked to name a few, a good adviser will consider all these options and make a recommendation that’s right for you.
For larger pension funds Income Drawdown should also be considered and for those who may want to retire gradually, Phased Retirement is an option.
Don’t just focus on the Lifetime Annuity, consider all other options, there could be something better out there for you.
3. Can you get me a better Annuity rate than my current pension provider has offered me?
Every pension provider has to offer you an Open Market Option (OMO), this allows you to shop about for the best Annuity for your circumstances. However not everyone does, indeed in 2008 nearly two thirds of people didn’t shop about (Source: Pension Income Choices Association).
Never think that your fund is too small to shop about with, or that it will be too costly, always look to other providers to see if you can get a better Annuity rate or indeed an Annuity that is more suitable for your circumstances.
4. Do I qualify for an Enhanced Annuity?
People are still losing valuable income by not having their health or lifestyle taken into account when applying for an Annuity.
Your adviser should ask a comprehensive range of questions about whether you have any health or lifestyle issues which could mean that you qualify for an Enhanced Annuity.
If they don’t ask, maybe it’s time to consider a different adviser.
5. If I do buy an Annuity should it be level or increasing?
For us, this is possibly the most asked question by people looking to buy an Annuity.
In an ideal world every source of income that you have would rise each year in line with inflation.
Get your adviser to provide illustrations for a level Annuity and an RPI linked Annuity. Your adviser should then be able to calculate the ‘breakeven’ point i.e. the time you will have to live before you are better off with an increasing Annuity.
Once you have this information you can then make a decision which suits you best.
6. Would a Purchased Life Annuity be right for me?
Purchased Life Annuities are often overlooked but can be really useful for those people who do not need their tax free lump sum and want to create an income with their entire pension fund.
Simply put, the 25% tax free lump sum is used to buy a Purchased Life Annuity rather than a normal Lifetime Annuity. The Purchased Life Annuity has preferential tax treatment as part of the income is deemed to be return of capital, giving you a potentially better net income than if 100% of the fund had been used to buy a normal Lifetime Annuity.
If you don’t want the tax free lump sum, get your adviser to speak to you about the benefits of a Purchased Life Annuity.
7. Will you negotiate with the Annuity providers on my behalf to get a better rate?
The Annuity market is competitive and the providers want your business.
Make sure your adviser has negotiated as hard as possible with the Annuity providers to get you the best income they can. Not every Annuity provider will negotiate, some are more flexible than others, but if you don’t ask you don’t get, and the results can often be surprising.
Retiring soon? Our advisers can help you make the right decisions
Contact our team of advisers today:
0115 933 8433
8. Do you work on commission or fees?
This is another common question and should be asked of every Annuity adviser.
Get your adviser to discuss both options with you, ideally both should be offered and given equal consideration.
For larger cases you may be better paying the adviser a fee for their advice and having all commission rebated back to the Annuity. For smaller cases the commission route can often work out better.
If you opt for the commission route though, make sure your adviser discloses not only the commission they get from the recommended provider but also what other providers would have paid; that way you can spot any potential bias.
9. How experienced and qualified are you?
We would always recommend working with a qualified, knowledgeable and experienced adviser.
This is an important decision, potentially one that you cannot change if you make a mistake. You therefore need to be working with someone who knows what they are doing and has their finger on the pulse of the fast moving Annuity market.
Summary
Deciding which Annuity to buy, or indeed whether you want an Annuity at all can be hard; especially when the decision is often final.
Don’t be afraid to ask tough questions such as the ones we have highlighted, it is after all your money which needs to work as hard as it can for you.
Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk
