Wednesday, 6 March 2013

Annuity code to help pensioners

I looked forward to the day that I could retire early - I just wanted to get away and cruise the inland waterways. Over the last few years the thought of a life afloat helped me get through working in a place that I no longer wanted to be. I took an early retirement course, which opened my eyes to many issues based around my retirement income. Anyone coming up to retirement should do the same.

Pensions are always the biggest worry, whether it be state, occupational or a private pension arrangement. There is a new code of conduct to help people who are about to buy an annuity. The code of conduct is intended to help you shop around for the best possible deal. The code comes into force as of the 1st of March this year. 

When you reach retirement age, it is highly likely that you will use some or all of your accrued pension pot to buy an annuity. (You can take a variable lump sum of up to 25% of the pension pot) An annuity is the investment which converts your pension funds into an income guaranteed for the rest of your life. The choice you make is a once-in-a-lifetime decision. It's very important that you get it right.

Under a new code of conduct, drawn up by the Association of British Insurers. It should get easier to get an annuity with the best rates and most suitable terms for your particular needs. The new code, which has been, designed to encourage people to shop around for their retirement income. At present, many people simply sign up to the annuity offered by their existing pension provider without seeing what other rates are available elsewhere in the market.

Just accepting what's on offer is a bad move. - When my pension provider sent me details of what the figures worked out at. They included an application form already filled in for their annuity offering. The very fact that it was filled in made me shop around and I improved my pension provision by £84 pounds a month over what my previous pension provider was offering.

Under the new code of conduct, pension providers must now make it clear to pension savers that they have the option to shop around, using what is known as the "open market option". "The ABI's code brings some enormous benefits to the 400,000 people who buy an annuity every year." says Richard Baddon, insurance partner at Deloitte."Rates can vary between providers by up to 20 per cent, and as consumers can buy an annuity only once, it is crucial that they get it right."

Under the new code providers will also no longer be allowed to include an annuity application form within their information packs, helping promote active choices. In addition, the code will also force insurers to inform consumers about enhanced annuity options. 

Enhanced rates apply to individuals who have a health condition (no matter what the condition is) that could affect their life expectancy. Enhanced annuities pay out more, in some cases up to 50 per cent more, because the annuity provider is essentially calculating that you will not live as long as healthier individuals. "By shopping around, getting advice, and making sure they disclose any medical conditions, consumers can secure the highest rates," says John Wilkinson from Nationwide. "They can also shape their own annuity to include spouse benefits or guarantees, making the most of their pension pots in retirement."

So if you have a pension pot and your looking to retire to the canals. - Shop around before buying an annuity. In some cases you can take your pension pot early. However, annuities have been going down in value over the last few years. Talk to an independent financial adviser before taking the pot early as there may also be penalties. But it could be worth a bit of additional income to jump early. The way that this government setting it sights on pensions, might also be another motivator to move early.

In the meantime, it is vital that those approaching retirement age plan their choices properly to make the most of any pensions savings and other assets.


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