Annuity rates have continued to fall much in-line with Gilt yields. In the early 1990s annuity rates were above 12% for makes aged 65 – meaning that a £100,000 pension fund would secure a lifetime income of £12,000 a year. Now annuity rates are closer to 6% – effectively halving the income that a £100,000 would produce.

The main problem with annuities is that once you have decided to have one, you are stuck with it for life. This is a big decision to make just at the point you are considering all your possibilities upon retirement.

There are few rights and wrongs with annuities as only in the fullness of time will the decision be proven “right” or “wrong” – essentially it is is gamble on how long you will live.

The only really “wrong” decision is to accept the annuity that is quoted by your pension company. This is often very poor when compared to getting the best deal on the market – which is where an IFA helps. However importantly, another aspect to consider is the income planning – and tax liability that might be generated. This is where a good financial planner can add significant value (such as ourselves).

The more “bells and whistles” that are added to the annuity the worse the initial deal looks. However, for most people it makes sense to maximise any guarantees and have the annuity pay to a suriving spouse if appropriate. It may be worthwhile to have an annuity that increases in line with inflation each year – though it may take many years to reach the same monthly income as a level annuity, taking even longer to match the accumulated total income paid.

So it is vital to get good advice that reflects your requirements and retains flexibility wherever possible. There’s a document within our resources section of the website that covers the main options.

If you know anyone approaching retirement or about to agree an annuity please ask them to get in touch, we might make their retirement income considerably better.