Missing out on a bigger income in retirement
When you reach your retirement, you have to make some important decisions about how to convert the capital in your pension fund into an income that will last for the rest of your life.
Most people choose to buy an annuity.
These financial instruments are designed to convert capital into income. The level of income you get depends on various factors including the size of your pension fund, your age, yields available from government bonds (gilts) at the time and, importantly, your state of health.
If you are in poor health, and therefore have a shorter than average life expectancy, you can qualify for a bigger income in retirement.
Unfortunately, many people reaching retirement effectively throw away this opportunity to fund a better lifestyle.
They opt for the default annuity option on offer from their existing pension provider, failing to shop around to exercise their entitlement to an open market option.
This shopping around process is relatively painless and can result in a big increase in retirement income; it is not unusual to see a 30% improvement in income levels.
Crucially, shopping around for the best annuity rate is not where the hunt for a better income finishes.
New figures reported by Money Mail suggest that a chronically sick pensioner is being deprived of a better income in retirement every seven minutes!
This is despite the introduction of a new code of conduct introduced for insurers in March, designed to encourage savers to shop around for a better deal.
Those with health conditions, taking medication or smokers can qualify for an improvement in retirement income of up to 40% over the most competitive standard annuity rates.
Combine the open market option with a suitable enhanced annuity tailored to your personal situations, and the improvement in income can be substantial.
You have worked hard all of your life to save diligently into a pension which was designed to provide for you in your old age.
It seems such a waste to squander a hard earned pension fund by accepting the first annuity deal that is offered by a pension provider.
Speaking to an independent financial adviser and taking your health into consideration when shopping around is a bit of a no brainer when the improvement in income levels available will more than offset the time and fees involved in taking professional advice.
Do speak to us today if you are approaching retirement and need our help.
You might also want to attend our client seminar on Saturday morning which explores making the most of your pension fund.