Shopping for the best annuity

Despite living in the age of the internet, finding the best deal can be more difficult than you think.

The problem only becomes more compound when it is a crucial decision like buying an annuity, which may well be one of the most important financial decisions you will ever make in your lifetime.

After years of saving every penny, when you are finally ready to retire, you must ensure that you get the best retirement income.

And you do not need to buy an annuity offered by your pension provider. Shopping around is your right and in this case, a necessity.

The fact is that retirees in the UK are frequently fobbed off by pension providers selling annuities. A glossy sales pitch, lack of research or pure customer lethargy can make a difference of as much as 31% according to Hargreaves Lansdown.

All said and done, how does one find the best annuity?

What are your financial goals?

If you are on a path to buy an annuity, the chances are that you have an income in mind that you would want in the years to come.

The type of annuity you choose should depend on your current financial circumstances and future financial anticipation.

An FCA accredited independent financial advisor will be the best person to guide you. Alternatively, you can also use the government-backed free Pension Wise service.

Have you made the best of your employment years and saved for the golden years? In other words, do you have any savings and funds tucked away in different nests?

  • If yes, then you may want to opt for a single life annuity which will give you with a higher income in the initial years of retirement.
  • On the contrary, if you have a dependent spouse or civil partner or a child who does not have a pension arrangement of their own, then you may want to think about their survival in the event of your death. A joint life annuity would be a better choice.
  • Is a fixed monthly income for the rest of your life enough for you? Remember that the value of this income will decrease over time due to inflation.
  • You can also choose a type of annuity where your income increases each year in line with rising prices.
  • If you are a smoker or have a health condition that could reduce your life expectancy, then you may qualify for a higher income rate through an annuity called, ‘Enhanced annuity’.

To fully understand what annuity is the best one for you, you must shop around.

What about my pension provider?

Just because you shop around for an annuity, it in no way means that you cannot sign up with your pension provider.

In fact, you can use your pension provider’s annuity quote as a point of reference while shopping around. If you get a better rate that is suited to your financial requirements, then by all means, go ahead.

On the other hand, if your pension provider offers you a ‘Guaranteed Annuity Rate’, then chances are that it will be better than what any annuity provider can give you.

That’s one scenario where you would want to stick to your pension provider.

What should you ask an annuity provider?

Ideally, an annuity provider will ask you a series of questions about your health, marital status and financial status. The annuity which they will offer to you will be based on the answers you provide them with.

You will also be provided with a personalised quote and a personalised illustration that projects why a particular annuity is the best option for you.

In 2013, the Association of British Insurers issued a new code of conduct for pension providers, under which they are bound to provide precise information to retirees about the various options they have. They should also encourage retirees to shop around so that they can get the best rates for their annuity.

If you think that the information provided to you is inconclusive, then you can choose to walk.

Alternatively, you can politely ask them to explain why their product would be the best fit for your financial circumstances.

Remember, a better retirement income might just be around the next corner. Don’t be caught with a lower rate only because you were too lazy to shop around.

Are you looking for a professional financial advisor? Read our article, ‘How to Select a Financial Advisor’ for more information.