The Annuity market can be a complex and daunting place. We want to make your life as easy as possible, so we’ve put together this list of questions for you to use when you speak to your Annuity adviser.
1. Are you an adviser?
You will no doubt be shopping around for the best Annuity for your needs. You need to take care though to understand who you are speaking to and the basis firms are working with you on.
Some firms, such as Investment Sense, offer advice on which options are best for you. Others, especially some of those which have recently launched, offer a ‘non-advised’ service, where they can only provide you with information about various Annuities.
Make sure you know who you are talking to and whether they are advising you, or simply giving you information.
An Annuity can never be changed. Many financial experts such as Martin Lewis of Moneysavingexpert and Ros Altman share our view, that even for the most financially aware person, advice is crucial.
Firms who offer independent advice charge a fee, which is paid out of your pension fund, ‘non-advised’ brokers get paid a commission, which also comes from your pension. The word ‘fees’ can often put people off, but is shouldn’t, our research shows that fees can often work out cheaper than commission.
Remember, if the cost is the same, or even less, what have you got to lose in getting advice? Even if it’s only to confirm you were right in the first place!
2. Are you independent?
When you buy your Annuity you essentially have four options:
- Go direct to the Annuity provider
- Use a firm tied to one Annuity provider
- Use a ‘non-advised’ service, which may or may not have access to the whole of the market
- Use an Independent Financial Adviser who can offer you access to the whole of the Annuity market
We would always recommend using an independent adviser; it’s the only way of guaranteeing you get access to every Annuity provider, whilst getting advice on the best type of Annuity for your unique circumstances.
Remember too, the fee you pay for advice is generally no more, and often less, than the commission you pay if you go direct or use a ‘non-advised’ service.
3. What qualifications do you have?
Buying an Annuity is an important decision. It’s probably the largest financial commitment you will ever make after buying a house. But, unlike the house, you can’t change your mind, if you decide in years to come you have made a mistake.
Such an important decision should be handled by someone with the appropriate qualifications, which only Independent Financial Advisers have to have.
We’d recommend working with an adviser who knows what they are doing, is well qualified and has their finger on the pulse of the fast moving Annuity market.
4. What other options might be right for me instead of an Annuity?
There are many different types of Annuity:
- Lifetime Annuity
- Enhanced Annuity
- Fixed Term Annuity
- Investment Linked Annuity
- Purchase Life Annuity
A good adviser will consider all these options and make a recommendation that’s right for you.
For larger pension funds, be sure to consider Income Drawdown and for those who want to retire gradually, Phased Retirement is definitely an option.
Don’t just focus on the Lifetime Annuity. Consider all alternatives; there could be a better option for you.
5. 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, too few people take advantage of the OMO and buy their Annuity from their existing pension provider.
You should never think your fund is too small to make shopping about worthwhile, 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.
6. 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, to see whether you have any health or lifestyle issues, which could mean that you qualify for an Enhanced Annuity.
If they don’t ask these questions it’s time to consider a different adviser.
7. If I do buy an Annuity should it be level or increasing?
Buyers of Annuities probably ask this question more than any other
In an ideal world, every source of income you have would rise in value each year in line with inflation. However, there is a cost, if you include indexation, your Annuity will start at a lower level than if you don’t.
Get your adviser to provide illustrations for a level and inflation linked Annuity. Your adviser should then 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 as to which suits you best.
8. Would a Purchased Life Annuity be right for me?
Purchased Life Annuities, or PLA for short, are too 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 PLA rather than a normal Lifetime Annuity.
As the PLA has preferential tax treatment, because part of the income is deemed to be return of capital, it gives 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, ask your adviser about the benefits of a PLA. You could be better off each month!
9. 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. The results can often be surprising.
We are here to help
Deciding which Annuity to buy, or indeed whether you want an Annuity at all, can be hard; especially when the decision is final.
Remember, whilst the Annuity rate is important, and must be competitive, it isn’t the ‘be all and end all’. It’s vital you get the Annuity which is right for your own unique circumstances.
Don’t be afraid to ask tough questions, such as the nine we’ve given you here, it is after all your money, which needs to work as hard as it can for you.
Our team of Independent Financial Advisers 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 84330115 933 8433, alternatively enquire online or email firstname.lastname@example.org