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Mowatt Financial Planning: It pays to shop around!

Monday, 23 January 2012

It pays to shop around!

Buying an annuity with your pension fund is an important decision. The problem is that not enough people consider their options and make sure they get the right annuity for their situation. Clearly one factor is making sure that you get good value when you but an annuity. MGM Advantage, a retirement specialist company, have just published the findings from their Annuity Index.

The index shows that annuity rates have been falling since 2009. This means that the income that you could get from your pension has fallen over this period. The actual fall in the index from June 2009 is 9.3%.

The tables below shows different comparisons of the income available from a pension pot of £50,000.

Table 1


Average standard annuity (per annum)

Average enhanced annuity (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£2,929.17

£3,560.93

21.57%

£3,158.80

£10,739.92

Women

£2,771.46

£3,357.43

21.14%

£2,929.85

£11,719.40


An enhanced annuity is essentially an annuity where the amount of income takes account of factors such as lifestyle and medical conditions. As a result the amount of income is higher (enhanced). Obviously the enhancement will depend on personal circumstances but the table shows the importance of checking to see whether you are eligible for enhanced terms or not.

Table 2


Top quartile average rate (per annum)

Bottom quartile average rate (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£3,237.56

£2,711.26

19.41%

£2,631.50

£8,947.10

Women

£3,038.56

£2,500.30

21.53%

£2,691.30

£10,765.20


This table shows the comparison of a top quartile rate against a bottom quartile one (no enhanced terms). If your pension is with a company whose annuity rates are not competitive, you are in danger of losing out on a significant amount of income. When you decide to buy an annuity, you don't need to buy it from the company who is managing your pension. In fact it is vital that you shop around to see if you can get a better deal.

Table 3


Top quartile average rate (per annum)

Bottom quartile average rate (per annum)

Percentage difference

Difference over the first 5 years of retirement

Difference over an average retirement

Men

£3,943.47

£3,035.54

29.91%

£4,539.65

£15,434.81

Women

£3,644.64

£2,923.68

24.66%

£3,604.80

£14,419.20


In this case, the comparison is similar to Table 2 but is based on an individual who qualifies for enhanced terms. Once again, the table shows the importance of shopping around.

These tables provided by MGM Advantage show the importance of shopping around when you are buying an annuity with your pension fund. There is no reason to not seek out the best rate and make the most of your pension fund.

Please contact me on 01347 868196 or via the website if you would like to discuss any aspects of this article.

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