Shopping around for the Pension best annuity rates could give your pension a significant lift.

Explore your options
Many people assume that they have to buy an annuity from the company that has held their pension. This is not the case, as you have the right to shop around for the best pension annuity rates when you retire – it’s called the open market option (OMO). Worryingly, figures from the Association of British Insurers (ABI) show that 61 per cent of people who bought an annuity in 2007 did not shop around in this way.

Get the best deal
There are huge differences between the level pension annuity rates offered by the various annuity providers – underlining the fact that you should use the OMO.

It is estimated that up to 40% of people retiring qualify for an enhanced/impaired annuity but only a tiny proportion of these people apply for one!

 

Conventional Pension annuity rates with level income

Conventional annuities are also known as guaranteed annuities. They pay out a fixed rate of income to you until you die. Many people opt for a conventional annuity because it pays a known and guaranteed income at the outset.

Benefits

• You'll know exactly how much you'll get because your income is guaranteed to remain the same.
• Your income will not be affected by market fluctuations.

Considerations

• The purchasing power of your pension income will be eroded by inflation over time. The income will remain at this level for the rest of your life.
• Once selected, it cannot be changed.

Conventional pension annuity rates with increasing income

As its name suggests, this is a conventional annuity where the income rises in line with the Retail Prices Index (RPI), or by a fixed amount (typically 3% to 5%) each year.

Benefits

• You have a guaranteed income for the rest of your life.
• Your income will increase in line with the RPI or by the fixed rate chosen. This may help keep pace with or even exceed inflation.

Considerations

• Selecting an increase will lower your starting income.
• If you choose a fixed percentage increase, your income may still be eroded by inflation over time.
• Once selected, it cannot be changed.
• If you choose an annuity that increases in line with the RPI and inflation is negative, your income may go down.

With-profits pension annuity rates

A with-profits pension annuity pays you a regular income for life, based on the performance of a linked with-profits fund. Assuming investment returns are good, your income may increase and over the longer term potentially giving you some protection against inflation. 

Benefits

• It guarantees to pay an income for life that won't fall below a minimum level.
• Potential for increases in income, based on the performance of the with-profits fund, which can help to keep pace with or even outpace inflation.
• Some allow you to convert to a conventional annuity with level or increasing income if you change your mind.

Considerations

• A with-profits annuity is more risky than a conventional annuity, because whilst there is potential for growth your income can go down in years of poor fund performance, although not below a minimum guaranteed income level.

Unit linked pension annuity rates

This type of annuity links your retirement income to the value of an underlying investment fund. The fund can be low, medium or high-risk, depending on what is offered by the provider.

Benefits

• Potential for increases in income, based on fund performance.
• Potential to keep pace with or even outpace inflation.
• Some allow you to convert to a different type of annuity if you change your mind.

Considerations

• Your income can fall.
• There may be no minimum guaranteed income in years of poor performance.
• This is the highest risk annuity option.
• This is a complex product and you should seek financial advice if you want to find out more. There may be a charge involved.

For the best pension annuity rates complete the form opposite and we will search the whole annuity market to find the provider best suited to your circumstances.