The FSA have just announced their intention to carry out a review of the annuity market and how annuities are sold.
An annuity is the regular income plan that is purchased with part or all of a pension fund when retirement is reached. Individuals pay into their schemes throughout their working life in order to build up as much of a fund as possible, to be used to fund their income in retirement. When it comes to using the fund to buy an income – there are a number of issues that need to be considered.
Firstly, annuity rates have fallen dramatically in recent years. Rates are driven by interest rates and government bond yields, which have fallen dramatically and are likely to continue to remain low for considerable time to come. Secondly, once the annuity is purchased, it is fixed for either a set period or for life depending on what is chosen. So there are some very important decisions to be made when you buy an annuity. For example: where do you get the best rates, should you allow for inflation and will your spouse need a pension when you die?
The FSA’s concern is the low number of people shopping around for their annuity rather than selecting the income offered by their pension provider. Only around 40% of annuity holders shop around for the best rates. Even though pension providers are obliged to advise policyholders that they have the option to shop around, the majority do not do so, therefore are not getting the best value for money.
Taking advice from an independent financial planner can make this a reasonably simple exercise. At Taurus Financial Solutions we will discuss your options with you, plus we have the ability to search the entire annuity market for the best available rates. At the same time, we can ensure that you will be taxed correctly when you start retirement. We can also review any other savings and investments that you have, to ensure that they remain suitable for you and can support you as you enter the next stage in your life.
Contact one of our advisers on 01227 761177 to find out how we can assist and put your mind at ease that you are getting the best return from your pension.