Annuities have sparked many debates since the pension freedom act in the U.K of 2015 as we have seen low-interest rates. Having an annuity is not what it use to be, in the 80s where you could get 5% on your pension a year now you are lucky to beat what is deemed the CPI inflation figure of 2%.
This begs the question, are annuities still worth the price? The prime reason behind them was to give an income for life. An annuity is a product that you purchase from an insurance company that gives you an income for life. But, as the link between interest rates and as of writing in 2020, being so low. They are not providing the income of the assets.
Is It Worth Taking Your Annuity?
To purchase an annuity it will need to be done 6 months prior to retirement. You should be updated by your pension provider prior to this about the options under the guidelines of the FCA.
The benefits of taking an annuity are they can provide an income for life, under the pension freedom act it gives you more flexibility under your pension. However, when this was introduced it begged the question is it a viable option. Statistics by Which have shown that 40% of people surveyed lost value on their pension pots when moved it and controlled it under a SIPPs. With this being said, having some of your pension that does get some income and is stable is not a bad option.
Some benefits, are if you do have health issues the annuity is likely to pay out a higher rate (around 40%-60%) more due to the lower life expectancy.
If you have a higher life expectancy, the annuity is also likely to be higher than your pension pot.
Does It Have Any Drawbacks?
We have spoken about some of the negative effects with low-interest rates as of writing in 2020 this does not look to change any time soon. This adds another one that you can’t predict, the future economic situations are therefore subject to fluctuations and income based on the current level of Interest and future interest rates.
Some other drawbacks though are when an annuity is purchased it can’t be withdrawn to another investment option. As well as some SIPPs and investment options. It does not have a beneficiary option there for if you die it can’t be passed on.
As An Expat Can I Get An Annuity?
Yes, you can. But, it is not subject to this option, and living overseas you might want to take a holistic view and see an IFA specialist about the best options.
Conclusions
Annuities are not as attractive as they use to be with lower interest rates. Although, with the population living longer and a significant proportion taking self-control of their pensions and not adding value they do seem to be a stable option. If you want to know the options about getting an annuity feel free to get in touch.
