Money

Pensions

Annuities - is the time is right for you?

Notes - sterling

The credit crisis is good news if you are planning to buy an annuity, writes Paul Lewis

Annuities are becoming better value. If you are about to retire and convert your pension fund to an income for life, you will get more now than a year ago. It is one piece of good news coming out of the credit crisis hitting banks.

A year ago a man aged 65 with a £100,000 fund could have a pension of £7,199 a year for life. Today he can get £7,764, which is 7.85% more. Women get lower annuities because they live longer, but rises are slightly more. A 65-year-old will get £7,250 instead of £6,711 a year ago – a rise of 8%.

The recent increases have raised annuity rates to their level in autumn 2002. They were then falling sharply as insurers realised just how much life expectancy was lengthening. And Stuart Bayliss, director of Annuity Direct – an independent financial adviser – says today's rates may not last.

He said: "Longevity is set to improve for the next 10 to 15 years, though in the longer term there is a question about it. And if the banking crisis is coming to an end, then rates are probably peaking."

Of course, these improvements only help those retiring now. People who locked into a lifetime annuity in 2007 – or worse in 2005, when they were at their lowest – are stuck with it.

Most people buy an annuity from their pension provider. Only do so if the pension has a guaranteed annuity rate, which will usually be higher than market rates. Otherwise, exercise the open market option and find the top annuity for your money. The best is currently 20% higher than the annuity offered by the ninth best provider.

Smoking can boost your annuity by more than 10% at 60 and more than 15% at 65. And some medical conditions can mean even higher annuities, so always be honest about your health.

* For annuity advice see www.saga.co.uk/money-shop

* This article first appeared in the July 2008 edition of Saga Magazine. Paul Lewis' opinions are his own and for general information only. Always seek independent financial advice.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.
The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.