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Why over 50’s should shop around for an annuity


The majority of us will not concern ourselves with the topic of pension annuities until we actually reach retirement age. Most people only have a vague idea of what an annuity is because the product only becomes important once we approach retirement. For those who are not one of the lucky ones to be in receipt of a final salary pension, the choice at retirement stage usually entails the purchase of an annuity. Below we have outlined what you need to know about annuities and how to get the best deal possible.



So what is an annuity?



An annuity is something you buy from an annuity provider in exchange for your pension fund that you have been saving into throughout your career. In exchange for the money you have saved into your pension pot, the provider agrees to pay you an income each year for the rest of your life, regardless of how long your retirement is. You can take up to 25% of your pension fund as a tax-free lump sum when you purchase your annuity. With a standard or level annuity, the income level you receive is based on current annuity rates, which themselves are priced against gilt yields (government bonds).  There are many other types of annuities on the market however, so do seek advice when looking to buy one.




Aside from current gilt yields there are several other factors annuity providers use in order to price an annuity including your age, state of health, location, and fund size. The provider needs this information to assess how long you will live for, as those who are likely to live longer (healthy, younger retirees) are usually offered lower rates as the provider will have to pay out an income for longer.




Another point to note is that not all annuity providers offer the same rates or the same products. In fact there can be vast differences in the income you will get between providers, so it is vital that you compare them, known as using the open market option. Many people are unaware of the need to compare annuity providers and just take their annuity from their current pension provider. This means they could miss out on a potentially higher income in retirement as once an annuity has been purchased it cannot be switched or changed like other forms of insurance.




What are enhanced annuities?



The highest paying annuities are known as enhanced annuities which are designed for those retirees who have medical condition or ‘lifestyle choice’ that is likely to reduce their life expectancy.  People with serious health conditions such as a history of heart attacks or strokes could see their annuity offer increase by as much as 40% or more. The ‘lifestyle choice’ refers to those who drink alcohol or smoke tobacco on a regular basis, which again is deemed to reduce life expectancy. Although the most serious medical conditions are the ones that qualify a person for the highest rates, there are many other minor conditions which can lead to enhancements on your annuity. Some estimate that around 70% of all those who buy an annuity are actually eligible for some form of enhancement. The best advice is to ensure you shop around and also to declare any past or present medical conditions.




For more information about shopping for an annuity, visit Annuity City.



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