Second rate annuities can harm your income
-Bob Bullivant is chief executive officer at Annuity Direct. The opinions expressed are his own.-
There are two distinct phases in building a pension – first comes the process of building up a pension fund – the so called accumulation phase. The next part is actually turning the money saved into an income for life – or pension, the so called decumulation phase.
When it comes to buying an annuity there are many things to consider and getting any of them wrong can have serious implications for your pension income. The first thing that needs to happen is a proper forensic review of your existing pensions. This will include a report on any penalties that might be imposed by your pension company.
These might include early retirement penalties or in the case of with profit funds market value adjustments. The report will also consider if you are entitled to a guaranteed annuity rate as part of the policy as guaranteed rates are often much higher than rates generally available in the open market. Older policies may also have life assurance cover or premium waiver benefit attaching to them and if so then the impact on the cover of taking the pension must be understood.
Add all of this together and it becomes clear that there are many potential pitfalls. The interesting thing is that if you want to move pensions before retirement the FSA insists on all of these issues being investigated. The same requirement does not apply at retirement and so you are very much on your own unless you take professional advice.
Armed with all of this it is time to move to the next phase. This is where specialist skills are required to get the right income. There are a number of ways to generate income in retirement including income fund withdrawal which is a highly complex area and the rules about adviser selection outlined below apply equally to this area. For anyone wanting guaranteed income in retirement the selection of an annuity must be done with great care for the simple reason that it can only be done once. Obtaining the best rate and most appropriate options is therefore essential.
Once again there is a need for careful selection. Anyone with a health or lifestyle issue or who is a smoker should complete a medical questionnaire. There are over eight providers in the market for enhanced annuities and it is important that all of them see the questionnaire. There can be a significant difference between the top and bottom rate as a result of a provider’s view of medical conditions. Recently, one provider took such a stark view of a medical condition that it offered £7800 more per year than other providers.
Our web site shows the average annual increase we achieve for our clients each month – last month it was over 12 percent per year – in August it was over 31 percent per year. Remember, you can only buy an annuity once – getting it wrong means less income for life!!!!
So how does a client achieve the very best. There are a number of simple questions to ask anyone offering annuities:
1. Are you independent and do you assess the whole of the market? If the answer is no then look elsewhere.
2. Do you investigate my existing arrangements and report on them? If the answer is no then look elsewhere.
3. Do you have the full Certificate qualification? Have you passed the advanced pension income options exam? If the answer is no then look elsewhere.
4. Is your firm a Chartered Financial Planner? If the answer is yes you have the comfort of knowing that it is run by some of the best qualified professionals in the country and that it belongs to a Chartered professional body. If the answer is no then find one .