Buying an annuity is one of the most important financial decisions you can make, so it’s vital that you get it right.
The difference between the most and least suitable annuity could mean an increase in annual retirement income of thousands of pounds.
The first thing to decide is what type of annuity you want to buy, for example, if your partner is relying on your pension to some extent, you should consider a joint life annuity which continues to pay out after you die.Those with a history of medical problems should look at enhanced annuities, which pay out more for those with shorter life expectancy. And you should also consider a deal which links to inflation, or which pays out a higher rate every year to compensate for increases in the cost of living.
Once you’ve thought about these options, you should seek out the company which pays the best rate on the annuity you’re interested in. It could also be worth comparing rates on different types of annuity – for example an inflation-linked annuity will pay less at the outset than a standard deal. But finding out the difference may help you choose between the two.
Around six months before your retirement date, your pension firm should write to you to set out your options when it comes to buying an annuity: the most important thing to realise is that you don’t have to purchase it from your pension provider. It might offer a decent rate, but it’s a much better idea to compare prices from as many of its rivals as possible before making your decision. Bear in mind also that your pension company may not offer the type of annuity you think is most suitable.