The secret to boosting retirement income
Take time to find the best annuity, declare any medical conditions – and you can raise your payments by 10 per cent
Sunday 26 July 2009
There's a television commercial running that's really worth watching. Aviva's annuities advert could make a substantial financial difference to half a million people every year. The message is simple: retirees could boost their income by 10 per cent simply by shopping around for their annuities. While it may not affect you right now, it could make a difference to your parents or grandparents, so it's worth passing the message on.
An annuity is the opposite of an ordinary insurance policy, providing a guaranteed lifetime income for people who have retired. They have to use a large part of their pension pot to buy an annuity so maximising returns makes sound sense, especially as an older person may have to rely on that income for decades.
David Kuo, of financial website The Motley Fool, says: "An annuity is a bet with an insurance company that you will live longer than it thinks you will. You aren't forced to buy your annuity from your existing pension provider, and different companies will have different views about how long you could live. The difference between the best and worst annuity can be as much as 15 per cent, so it is vital to shop around."
Around 450,000 annuities are taken out in the UK each year but Aviva – formerly Norwich Union – estimates that only 37 per cent use what is called an open-market option, which allows people to shop around for the best deal, rather than simply taking the plan offered by their pension companies. Gary Pepler, Aviva's UK life director, says: "It is vital that people make best use of the full value of their assets, whether these are pensions, property or savings."
The company's ad is designed to make people turn to Aviva for an annuity quote, but there are plenty of other firms to choose from. The key for anyone approaching retirement is to take control and make a positive decision. That really means sitting down with an independent financial adviser and talking through the options.
"If you are on the verge of retiring, don't just accept the first offer that comes through the door," advises Aston Goodey of MGM Advantage, another annuity company. "You may have been with your pension provider for years, but that doesn't mean they'll offer you the best deal when it comes to converting your hard-earned cash into a regular income."
According to figures from advisers Hargreaves Lansdown, someone investing £100,000 into an annuity could be better off by £1,434 a year by shopping around. Over decades, that could turn into tens of thousands of pounds.
If you have any kind of medical condition then you could be in line for an even greater payout. A smoker, for instance, could get another £1,209 a year more than the highest-paying conventional rate. It comes back to the fact that an annuity is, in effect, a bet with an insurer. The shorter the company thinks your life expectancy is, the higher the annuity payout will be.
"That's why people should always shout about any lifestyle and health issues, such as smoking. This is the one time when such issues can work in your financial favour," says Nigel Callaghan, pensions analyst at Hargreaves Lansdown. "Around four out of 10 people are entitled to an enhanced annuity, and with the average 65-year-old man having a life expectancy of 21 years, the extra amount can run into thousands."
Research from annuity company Just Retirement reveals that four out of five people retiring have no idea that they can shop around to get a better income. "With knowledge levels so low, it is unsurprising people are missing out on maximising their retirement income," says Nigel Barlow of Just Retirement. "More education is required from the time someone starts contributing to a pension to ensure they fully understand the options available when they come to draw an income."
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 5 Terror threat level raised to severe as PM warns Isis risk could last for decades
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- < Previous
- Next >
iJobs Money & Business
£50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony