Three reasons an Annuity might be the right choice and how to get the best rate


Annuities were never the most popular of options for retirees. Often seen as inflexible and poor value, many were bought begrudgingly by people who thought they had no other option.

Since Pension Freedom was introduced, the number of Annuities being bought has dropped significantly. Figures from Retirement Advantage show that around 180,000 have been bought over the past two years.

Despite a fall in popularity, there are still many reasons why an Annuity might be the right way of turning your pension into an income:

1.You want a guaranteed income, which can never fall in value

2. You cannot afford to see your income fall and if it did, you would be unable to pay your bills

3. You want more flexibility. For example, buying an Annuity with part of your pension pot so     that the income it produces, along with your State Pension, covers your essential expenditure. Then using Drawdown with the remaining cash, to provide a more flexible income to cover your discretionary spending

There are of course disadvantages to buying an Annuity; if you choose a level option, inflation will erode its value, it can never be changed and you won’t be able to leave a lump sum on your death.

However, there’s no doubt that for some retirees, they still have a place. So, with new research from Retirement Advantage showing that 90,000 people are losing out on nearly £9,000 over the course of their retirement, from not shopping around, how can you make sure you get the best Annuity deal possible?

Top tips to get the best Annuity rate

1. Shop around: The fact 50% of pensioners fail to shop around for the best Annuity rate, which after all will affect their income for the rest of their lives, infuriates many financial advisers. If you are thinking about using an Annuity to convert your pension into an income, shop around, don’t accept the quote offered to you by your current pension provider. Believe us when we say it will almost certainly make you better off

2. Consider Enhanced Annuities: People who currently suffer from ill-health, or have done in the past, may well qualify for an Enhanced Annuity. That probably means a higher income for the rest of your life. Even if you deem the illness to be relatively innocuous, it may be enough to qualify for a higher income; it pays to take financial advice and check

3. Declare your current (or past) smoking status: It may enable you to qualify for an Enhanced Annuity rate and get a higher income for the rest of your life

4. Don’t get blinded by the income: A single life, level Annuity, with no guarantee will always give the highest income. But it also means the income will fall in real terms as inflation takes effect, if you die early nothing further will be paid out and your spouse or civil partner won’t continue to receive an income if you die before they do. If you don’t want those things to happen, you need to start thinking about inflation proofing, guarantee periods and dependent’s pensions; all of which will cut your starting income, but it’s a trade-off between that, and making sure the Annuity does what you need it to in the short, medium and long, term

5. Take advice: No, we don’t mean discuss it with your friend down the pub, or over the water cooler at work! Independent Financial Advice, from a suitably qualified financial adviser is worth its weight in gold when you retire. It’s easy to quantify that value too; simply compare the Annuity rate sourced by your financial adviser, with that offered by your current pension provider. It really can be as simple as that

One size fits all?

Remember too that retirement planning is far more flexible than ever before.

It may be right to use all your pension pot to buy an Annuity immediately. On the other hand, it may make more sense to buy a series of Annuities to meet different needs. Alternatively, an Annuity might be right to cover your essential expenditure with Drawdown used to flexibly meet your discretionary spending.

These are just three options, there will be others. That’s where independent financial advice can be so valuable. Helping you to select the right option, or combination of options, to provide the income you need in the ideal format.

We are here help

If you are close to retirement, now is the ideal time to start thinking about how you will turn your pension pot into an income.

We are Independent Financial Advisers in Nottingham who specialise in retirement planning and advise clients throughout the UK.

If you would like to chat about your circumstances, please feel free to give us a call on 0115 933 8433.