The following is a guest post relating to UK Citizens.
Along with the introduction of automatic workplace pension enrolment, more and more individuals will be turning to annuities in order to get the most out of their pension pots upon retirement.
There are currently 400,000 pension annuities purchased each year in the UK, and that figure is only set to increase.
In a recent 12 month study conducted by the Financial Services Consumer Panel, it has been proposed that there should be major reforms to the British pensions industry.
FSCP’s research looks into the current annuity market and the role of providers from the perspective of consumers.
At present, many consumers are put off by the array of annuity options offered to them by providers over the Internet. This often results in individuals staying with the company their pension pot is with, or companies that they know well.
This can result in poor deals for pensioners. Many end up loosing out on a larger income that they could have received had they shopped around.
Other issues that have been identified in the study are the hidden charges, complexity and overuse of jargon, a lack of competition, as well as a lack of transparency.
Recommendations made by the FSCP include a suggestion to the government that they create a service for consumers that provides information and advice about annuities and the purchasing process.
They have also suggested that a specific code of conduct is created in order to regulate providers, focusing on standards, disclosure of charges and the implication of non-advice.
Changes to the way in which annuities are provided to consumers could result in individual customers receiving approximately 30% more annual income if they choose an annuity with another provider.
Annuity information needs to be made understandable, and easily accessible to the public. When you purchase an annuity it is often a permanent decision that cannot be changed in the future.
If you are looking to choose an annuity, there are certain things to keep in mind in order to make sure that you end up with the right plan. Firstly, familiarise yourself with they types of annuity that are available.
There are annuities that pay the same income amount each year, and ones that increase in line with inflation. Depending on whether you are single or married, you can invest in annuities that accommodate both you and your partner.
As an annuity is tied to an individual’s life expectancy, find out what type of annuity provides you with the best deal. If you have a medical condition it is worth looking into enhanced annuities. This option results in a higher payout as your life expectancy is deemed shorter, even if you live for longer.
It is important to do your own research and shop around, but an annuity is not the only option available to those looking to arrange income during their retirement. Alternatives include income drawdown and fixed term annuities.
Whatever choice you make, ensure that you are informed and provided with the best return on your savings.