Once you reach retirement age, you will probably be inundated with offers from pension providers, including your own, advising you to take out an annuity.
Annuities are not a new invention and have been around since Roman times so the system obviously works in principle. You save for your retirement and pay your pension fund to an annuity provider. In return, they provide you with a regular income as a pension. This allows the annuity consumer to have a secure monthly payment that will continue to the end of their life.
For some people this system works well. However, for the annuity provider it works even better. Without being morbid, it is likely that you will die before you have used up anywhere near the money you have deposited into your annuity fund. This means that on your death, your money will pass not to your family and loved ones, but to the annuity provider.
This is not random bad luck. Your annuity provider will factor in all your personal information and make a gamble as to your longevity. Of course, as with all gambles, there is the occasional unexpected result, but like gambling, the only true winner is the bookmaker in this case the annuity provider. The odds of you dying while there is plenty left in the annuity pot are stacked in the annuity provider’s favour. In addition, once you have gone the annuity provider benefits, and not your family.
Another factor to consider when thinking about an annuity is the annuity market rate. The annuity rate is low at the moment and expert opinion is that it seems likely to continue that way. This affects your future income because your rate is fixed at the time you buy your annuity.
With the recent abolition of the rule that required all pension plans to be converted to annuities at the age of 75, consumers are now free to look for alternative means of funding their retirement. You do not have to exchange your pension plan for an annuity.
Many investments and plans offer a much better return for investment without forcing you to sell your pension pot. By seeking independent financial advice, you will be able to find the best way to provide for your retirement and still keep control over your savings.
After all, you have had years of working and paying for your pension so it is important that you now make the right choices about providing for your retirement. Take the first step, contact an independent financial adviser, and find out how you can enjoy a comfortable retirement and still preserve your fund for your family and not the annuity provider.