Buying an Annuity

Easy steps to buying an annuity

What are the steps to buying an annuity?

Buying an annuity is a very traditional means of converting all your pension savings you’ve acquired throughout the years into an income to see you to the end of your life.

As of April 2015 you can withdraw as much money as you want at 55; it’s absolutely essential to understand that this withdrawal will be taxed as income.

Arranging the correct annuity can be a complex process and so it’s important to follow a procedure and more importantly shop around (open market option) in order to find the best annuity rate. Not taking the time or using sound advice could cause you to miss on a significant boost to your income.

Step 1

At around 6 months prior to retirement, your pension provider will send you a information pack, detailing the value of your pension pot, different annuity types available and the encouragement to shop around, not just taking the annuity offered by the provider themselves. The provider is obliged to state which types of annuities they offer and the packages which they don’t.

Step 2

At 10 weeks prior to retirement, the pension provider will send you a follow up pack. Both the information pack and the follow-up pack will contain any application forms for signing up to an annuity. The pack is simply to emphasise the importance of making a decision.

Step 3
This is stage is probably the most critical. It’s at this point you are strongly advised to talk to a qualified retirement (independent financial adviser) expert. Having read the packs in stages 1 and 2, your adviser can give you sound advice on which option is closely suited to your requirements and circumstances.

An adviser will ask questions such as:

  • If you are married / have a life partner
  • if you have any medical / lifestyle conditions
  • does the prospect of an annuity losing value due to inflation concern you
  • whether you are taking any small pots of cash and if you have any other pension pots.

Step 4
If you have not consulted a financial adviser, it is the responsibility of your pension provider to answer the questions in stage 3

Step 5
Should you decide to not liaise with a financial adviser, you can shop around for an annuity yourself; in almost all situations this will yield a higher level of income during retirement.

Step 6
When you have decided on a potential provider, they will give you a personal illustration of the annuity you are interested in, along with a quote and further options to consider such as an enhanced annuity.

Step 7
If you have decided to participate in the open market option and have made a decision on the type of annuity and provider you would like. Your pension provider will release the funds to your new provider. The setup of the annuity will be completed inside 30 days.

Why take annuity advice – Will it cost me?

Some people will take the non-advice route and make a choice from financially unqualified broker personnel. The information they offer will of course be truthful and yet general, in other words one of the information will be tailored specifically to your goals and circumstances.

Buying an annuity is potentially one of the most important decisions a retiree will ever make; taking advice before making a monumental choice empowers you to make an informed and calculated decision.

Accomplished and prudent advisers research the market carefully to make recommendations based on your retirement goals. Efficient advisers will contact your pension provider concerning policy information and will ensure your funds are transferred in good time.

The difference between taking advice and not taking advice can often be the difference in thousands of pounds of lost retirement income.

Want more information?

Retirement options should never be decided on a whim, they deserve careful consideration. We believe that all our customers should receive the same service and options that we ourselves want in our retirement. If you’re unsure about what is right for you, or you simply want further information to help you make the right decision please talk to us.

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