(d) Deciding When To Buy An Annuity

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Deciding when to convert our pension savings into an annuity income for life can have a big impact on the level of income were offered

. The timing can impact on both the amount we have to buy one with and the annuity rates that are available to us.

Pension proceeds

The vast majority of people buy a pension annuity with their pension savings, which will typically be invested with their pension provider. Any pension investments will need to be sold in order to buy an annuity, so selling these investments when their value is low will mean less to buy with.

Anyone whos lucky enough to have some flexibility with the timing of their annuity purchase can consider delaying selling their pension investments until the value has improved or recovered. Anyone needing to buy their annuity earlier than originally intended will need to be careful to look out for early exit charges that can apply to pension investments. These charges will also reduce the amount available to buy with.

Buying an annuity

Individuals can buy their pension annuity at any time after their 55th birthday with their income level decided by the annuity rates available at the time. They dont have to buy their annuity from their pension provider and it often pays to shop around for the best annuity rates. The Money Advice Services independent income comparison tables can provide a good idea of what each provider can offer.

Annuity providers like Legal & General decide how much income to offer largely based on the amount of pension savings people have to buy their annuity with and how long they expect to pay this income. They take into account trends in average life expectancy and investment conditions to decide their annuity rates, which can change fairly regularly. Theyll typically offer less income to someone buying their annuity when rates are low, than if they had bought their annuity when rates are higher.

Enhanced annuity rates

Some annuity providers offer extra income for life to customers with certain lifestyle health risks or medical conditions when they buy their annuity. The simple fact is, the older someone is, the more likely they are to qualify for enhanced annuity rates. And the more serious their health risks or conditions at the time of buying, the more income theyll be offered. Their income wont be increased at a later dater if and when their health deteriorates.

by: BrianAnderson

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