5 Tips For Getting The Best Annuity Rate

Written by on November 7, 2012 in Money - No comments | Print this page


Annuity rates have fallen considerably over the past decade or so. New research has shown that 2012 could see the largest fall since 2002 and that Annuity rates have fallen by 20% over the past four years and by 7% in the past three months alone.

Despite alternatives, such as Income Drawdown being available, many people who want a guaranteed income for life, as well as a simple solution to converting their pension into income, still opt for an Annuity. So how can would-be retirees guarantee that they get the best Annuity rate? Here’s our five tips.

1. Shop around.

Most pensions, with the exceptions of final salary schemes, now have to offer an Open Market Option, otherwise known as an OMO. This allows the retiree to shop around for the best Annuity rate. Too many people simply buy the Annuity offered to them by their existing pension provider, without looking around to see if they can get a better rate, which they invariably can. The message? Don’t take the first offer, shop around

2. Get an enhancement.

An Enhanced Annuity can provide you a higher level of income as it takes into account any health issues that you might suffer from or lifestyle factors, such as smoking or drinking alcohol, which might reduce your life expectancy. Many people suffer from ill health as they approach retirement and they should take advantage of this by seeing if they qualify for an Enhanced Annuity, even relatively minor conditions, which may not affect your lifestyle, such as raised blood pressure, high cholesterol, or diabetes, could qualify

3. Level or indexed?

A level Annuity will pay out the same amount each year of your retirement, whereas an indexed Annuity will rise at a fixed rate each year or in line with inflation. When you buy your Annuity think carefully about the option you take. A level Annuity will start at about 40% higher than an inflation linked Annuity, but the buying power will be eroded each year by inflation

4. Take advice.

Many people are naturally suspicious of financial advisers, but when it comes to buying an Annuity they can be worth their weight in gold. After all, this is probably the first and only time you buy an Annuity; do you want to practice on such an important piece of your financial wellbeing? Especially that any mistakes cannot be undone in the future as an Annuity can never be changed. Whether you go direct to an Annuity provider or use an adviser commission is built in to your Annuity, if you don’t use an adviser this is simply pocketed as a windfall by your Annuity provider. It therefore makes sense to take advantage of an adviser’s knowledge, experience and expertise

5. Negotiate.

You or your adviser should negotiate with the Annuity providers to see if they can improve on their initial offer to you. It’s a competitive market and most Annuity providers will negotiate to some degree or another. Getting a higher rate through negotiation is easier if  you have a larger fund, say £100,000 plus, or if you use an Independent Financial Adviser, who places large volumes of business with certain Annuity providers

Annuity rates are falling and you can never alter the Annuity you choose to buy, in other words, you get one go at this. It therefore makes sense to do everything you can to get the best Annuity rate possible, following our five tips will certainly help.

This is a guest post.  Phillip Bray has worked in finance for over 17 years, he writes on financial topics for Investment Sense, where you can do your own Annuity research using the online pension Annuity calculator.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net


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