Finding the best annuity rates is the most important step in securing the maximum income in retirement. The way to ensure you get the best rates is to use your right to shop around for the highest paying annuity on the market, known as the Open Market Option. If you have been paying into a defined contributions pension scheme you have the right to choose which company converts your pension fund into an income in retirement, known as an annuity. Comparing providers is an essential part of ensuring you get the best rates as not all providers offers the same rates and products. Unfortunately many annuitants miss out on a better pension as they were unaware of the need to shop around when buying an annuity. Although your current provider will offer information regarding the benefits of using the Open Market Option, many individuals still end up taking their annuity from the company with which they have been saving up their pension fund. Rarely does your incumbent provider offer the best deal which is why getting quotes from other providers is a necessary step in ensuring you get the maximum income.
How are annuity rates calculated?
Annuities are a form on insurance that are priced against the performance of 15 year gilt yields (government bonds). The companies that offer annuities invest in these bonds because they are deemed more secure than other investment options such as equities. The amount of money they can offer annuitants in income depends on the return they are making from buying these bonds, known as the yield. If the price of government bonds increases then the return made by the insurance companies falls, which means they have to cut rates. The latest Eurozone crisis has pushed up the price of UK bonds as the UK is perceived by foreign investors as being more secure than other European countries. This has subsequently reduced the yields which has sent annuity rates tumbling. In fact rates have fallen by 14% since 2009, leaving millions of retirees with a lower income in retirement.
Aside from gilt yields the other main factor which impacts upon rates is longevity (life expectancy rates). When the State pension was introduced people were only expected to live 2 or 3 years in retirement. Today the average retirement span in 20 years or more meaning people require a much larger income in retirement. With an increasingly ageing population, annuity providers are having to pay out income for a longer period and too greater number of retirees each year. This means there is less money to go round which again puts downward pressure on rates.
How much more income will the best annuity rates offer?
Just by comparing providers you could increase your annuity offer by 20% or more depending on your original quote. Recently it was observed that there were only 4 or 5 competitive annuity providers who could offer the best rates, with many other providers continuing to offer poor value annuities. Some annuity companies do not deal with the public direct so getting proper advice and comparing the market is essential. If you have a history of medical illness or you smoke/drink regularly then you could well be eligible for an enhanced annuity. These pay on average 20% more than conventional annuities and in some instances pay up to 40% more. Again not all providers offer these annuities so ensure you speak to an annuity specialist before committing to one provider.
How to shop around for the best rates
You can shop around for an annuity in a number of ways but the best option is to speak to an IFA or annuity broker such as ourselves. We take the hassle out of buying an annuity, comparing the entire market for the best rates. It has been estimated that as many as 70% of all those who buy an annuity may in fact be eligible for enhancements. We will ask the right questions to uncover any illnesses or ailments you may have that could qualify you for a higher rate. It is still a fact that most annuitants do not bother to shop around and instead take their annuity from their incumbent pension provider. If you want to ensure you are not one of those who misses out on a potentially higher retirement income then get in touch with Annuity City today. We have a team of fully trained and friendly advisors who can offer you a free, no obligation quote.