But is this still reasonable if you have a £60,000 pension pot and the adviser gets paid £1,200 or more.   

We offer a fixed priced service of £295 to arrange an annuity*. This means you can choose to recieve a higher annuity for life and pay our fee by cheque or you can recieve a cashback on completion of the difference between the commission paid and our fee.  

The table below shows how this works for a £100,000 annuity.

Commission Free Annuities

* Our fixed price annuity is based on the money for the annuity coming from a single pension provider, if there are more than one provider we will quote an additional administration fee for each plan.

The difference in retirement income between the top enhanced annuity rate and the bottom standard annuity rate is a staggering – 50.8% for men and 55.4% for women (for those aged 65+ with a £50k pension pot).

Further findings from the Index reveal that the average difference in the income paid between the top and bottom quartile conventional annuity rates for men is 23.32% and 28.08% for women. In relation to enhanced annuity rates, the corresponding figures are 22.10% and 20.59%.

Data from March 2012. Annuity rates are based on analysis of data from Investment Life and Pensions Moneyfacts by MGM Advantage. The analysis looked at level annuities without a guarantee and income levels are based on a pension pot of £50,000 and a retirement age of 65. To create total retirement income figures the Index multiplied annual annuity income by 17 years in the case of men and 20 years in the case of women. Enhanced rate figures are from a sample of smoker rates and enhanced rates based on health conditions. The Index based its life expectancy figures on Office of National Statistics figures.

The current restrictions around protected rights will be removed from 6^th April 2012.  This means the money built up in your contracted out pension can be treated as a single fund with any other pension funds you may have.

Here is a summary of the main changes:

1. The annuity no longer has to be provided on unisex rates.  Rates for men are likely to be higher, at least until the end of 2012 when new gender equality legislation will make all annuities provided on a unisex basis.
2. Married annuitants no longer have to purchase a 50% dependents pension.
3. You will able to buy single or joint annuities with any proportion of dependents pension (from 0% – 200%).
4. Dependents annuities can be on a “named” basis rather than surviving spouse/civil partner
5. The annuity can be purchased with a 10 year guarantee (protected rights currently have a maximum 5 year guarantee period).  See what is an annuity  for details of how the guarantee periods work if the annuitant dies.

You can still take 25% tax free cash from protected rights.

If you have protected rights benefits built up in your pension, and are over 55 years old please give us a call for a personalised Free quote.

Male: £3,135 per annum (6.27%)

Female: £3014 per annum (6.03%)

So men get over 4% more, every year for life (because they are not supposed to live as long).  Unisex rates have not been set yet but they will drag the annuity rate men can get down (and female rates up, of course).

Once the rules change it will be too late, so if you want to secure a “male” annuity rate, call us now. 

We can work out the cost of delaying your annuity purchase by 1 year, it takes a long time to recover the money given up (you will get a slightly higher annuity if you are a year older, but your life expectancy wont go up, so you get the higher amount for less years). 

Rates quoted 18/04/2012 using Exchange a computerised comparison service.

Last year we saw the European Court of Justice ruling regarding the legality of gender-based pricing in insurance underwriting. The court ruled that taking into account gender when underwriting insurance products was discriminatory, and therefore should not be permitted under EU law. The ruling impacts on many forms of insurance including pension annuities. After December 21st of 2012, the practice of using gender as a factor when compiling a quote for an annuity will be prohibited under EU law, although many annuity providers are expected to adjust their pricing well before this date.

Prior to this ruling annuity providers have based their annuity quotes on a number of different factors such as age, location, health and of course GENDER.  

On average women live longer than men and as a consequence were offered annuity lower rates.  This is because the providers were calculating that they would have to payout income to women for a longer time period than men (on average).  Now the court has effectively outlawed this practice, rates will have to be equalised.   Although you might expect these new ‘unisex rates’ to rest half way between current male and female rates, it appears that many providers will in fact be offering ‘unisex rates’ just above current female rates.

Ironically many women will in fact be worse of as a consequence of this ruling as 80% of annuities are bought by men to support them and/or their partner.  So the potential fall in male annuity rates is bad news for the majority of families.

We expect the demand for annuities to rise during 2012 as men try to secure better rates before the rules change.  As always we recommend seeking specialist advice before committing to an annuity purchase especially for those looking for a way to secure the best deal in the face of lower rates.

An often overlooked impact of the continued rise in enhanced annuities is the impact this has on the rate paid on standard life annuities.  Annuities work on a pooled risk basis.  If all the people with a lower life expectancy are taken out of the standard annuity pool the remainder will no longer gain from the people dying earlier and this will negatively impact the rate available for standard lives. 

This makes it even more important that people check all their available options:

1: Shop round using the Open Market Option.

2: Make sure, if you can qualify for an enhancement, you get it.

3. Consider using temporary annuities* or drawdown contracts.

*temporary annuities usually run for 5 years and have a guaranteed maturity value.  This can be used to buy another temporary annuity, a standard annuity or if your health has deteriorated you could qualify for enhanced rate annuities.   It enables you to defer the decision about buying an annuity without the investment risk normally associated with drawdown contracts.

For a chat about your options please give me a call.

Author: Chris Hallworth – Senior Partner at Click4annuities

Source: Assureweb: All figures based on a 65 year old male, £60,000 pension fund, payable monthly in advance, no escalation or additional guarantee periods. The enhanced rates assume the client is a 20/day smoker with a previous history of heart problems

So is now the right time to defer or should you purchase an annuity?

There are numerous factors that need to be taken into account in deciding if now is the right time to buy or defer an annuity.  But one area that may be overlooked is your health status.

If you currently qualify for an enhanced annuity, there are additional considerations to take into account that may not be immediately obvious – what are the implications if your health improves? What if it deteriorates?

If you do not currently qualify for an enhanced annuity, then you may want to look at the new Fixed Term Annuity contracts* – which can includes a conversion feature enabling conversion to an enhanced annuity should your health deteriorate at any time during the fixed term.

For Free advice on your options, please call our Advice Line Free on 0800 0842265.

*Fixed term annuity contracts pay a fixed income for a fixed term then have a guaranteed maturity value at the end of the term, which can be used to buy another fixed term annuity, a lifetime annuity or a drawdown contract.  These contracts can be very effective if your health deteriorates because you can still obtain enhanced rates that would not have been available at outset.

There were no surprises in the Act from a pension viewpoint just the expected confirmation of the backdated provisions, effective from 06/04/2011, such as:

a) New Drawdown Pension rules (maximum income 100% of the relevant Government Actuary’s Department (GAD) rate and 3 year review cycles before 75);

b) The introduction of flexible drawdown option

c) The introduction of lower £50,000 annual allowance with accompanying carry forward provisions

d) The reduction in the standard lifetime allowance to £1,500,000 (effective from 06/04/2012) 

For some clients these are significant changes to how pensions are accumulated and decumulated.

If you would like more information on how the new rules might affect you.  Or would like quotes on drawdown or flexible pensions and how they compare with annuities, please call us Free 0800 0842265.