Guaranteed Annuity Rates
Many older pension plans come with guaranteed annuity rates. These need to be thoroughly investigated. Over the years the rules on the guarantees can change and you need to make sure that the guaranteed rate is the right one for you.
For example some guaranteed annuity rates only apply to the person who took out the pension plan, no benefit would be payable to any spouse. If you bought a guaranteed annuity rate it could be that you receive a very good rate of return but if you died after a short period of time, say just a couple of years and your spouse would receive no further income.
Fund Value 50,000
Example Income 5,000
So if you died after 2 years payments you have received 10,000 and the annuity provider keeps the 40,000.
Say you buy an open market rate which would only pay 3,000 a year but also pay your spouse 3,000 a year after you died. In this example your spouse would have had to live for another 2 years, to be better off. So after 4 years overall you have would have received more income.
You need to investigate the terms of the guarantee and make sure that they benefit your own circumstances. No one knows how long they will live when they buy an annuity but factoring in your state of health is an important part of the decision, even when guarantees are offered.
The author of this article is John Kelly.
The author is a partner at Square One Financial Planning LLP. As well as being a diploma qualified finance planner, he is also a chartered accountant, one of a handful of such dual-qualified individuals in UK.
For example some guaranteed annuity rates only apply to the person who took out the pension plan, no benefit would be payable to any spouse. If you bought a guaranteed annuity rate it could be that you receive a very good rate of return but if you died after a short period of time, say just a couple of years and your spouse would receive no further income.
Fund Value 50,000
Example Income 5,000
So if you died after 2 years payments you have received 10,000 and the annuity provider keeps the 40,000.
Say you buy an open market rate which would only pay 3,000 a year but also pay your spouse 3,000 a year after you died. In this example your spouse would have had to live for another 2 years, to be better off. So after 4 years overall you have would have received more income.
You need to investigate the terms of the guarantee and make sure that they benefit your own circumstances. No one knows how long they will live when they buy an annuity but factoring in your state of health is an important part of the decision, even when guarantees are offered.
The author of this article is John Kelly.
The author is a partner at Square One Financial Planning LLP. As well as being a diploma qualified finance planner, he is also a chartered accountant, one of a handful of such dual-qualified individuals in UK.
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