Annuities

For all those who have any form of a personal or money purchase pension, they will need to buy an annuity by the time they are age 75. An annuity is an income paid to you for life by an insurance company in return for your pension pot. Once you have bought an annuity, you cannot usually change your mind and switch to a different one at a later stage. Not can you get your money back if you die the day after buying one because annuities work by a system of cross subsidy-those who die early contribute to those who live to a ripe old age.

The annuity market is highly competitive and you can improve on the income offered by your pension provider by up to thirty percent by shopping around on the open market. This is done by telling your pension provider that you want to use the “open market option” (OMO). You can then go to an annuity specialist who will seek out the best rate for the type of annuity you require. Before shopping around, one should remember to check their pension does not incorporate a guaranteed annuity rate that other insurers are unlikely to be able to beat. There are many different types of annuities that can earn clients money in different ways. The following will give an overview of just a few different types of annuities.