20 August 2013
1. A single life level annuity guarantees that your pension fund will not ‘run out of money’ and the income you receive from your pension fund will be fixed now for the rest of your life. You know what you will get each year.
2. It guarantees that you will never get a higher income than this even if annuity rates rise in future.
3. It guarantees that your income has no protection against inflation, so your purchasing power will be guaranteed to fall each year as prices go up.
4. It guarantees that if your circumstances change, your annuity income will never be adjusted to reflect that. For example, if you become ill, your pension income will not increase to reflect your poorer health.
5. It guarantees that if market circumstances change in any way, even if the insurer benefits from that, you never will.
6. It guarantees that if you die soon after buying, the insurance company will keep most of your fund and your family will get nothing from it. Even with a 10 year guarantee, the insurer keeps around half your money and with a 5 year guarantee the insurer will pocket nearly three quarters of your pension fund.
7. It guarantees that, if you need to pay for long-term care, your pension savings will not help you out.
8. It guarantees that you will lose at least 2% and possibly 4% of your pension fund in charges whether or not you take advice and even if you buy direct on-line.
9. A single life annuity guarantees that, if you die relatively soon, your partner will not benefit from your pension savings.
10. It guarantees that future reforms that may hopefully improve the workings of the annuity market will not help you.
Think carefully before deciding whether to buy an annuity and also finding the right type for your own circumstances.