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Financial planning
5 April 2023
Author: Steve Butler

How to make sure buying an annuity doesn’t leave you £10,000 out of pocket

Buying an annuity should always come after comparing annuities

For most, how much money you can plan on for your retirement is a singular focus once you start seriously thinking about funding later life.

The good news is that this has become much clearer over the last 12 months if comparing annuities is one of the tools you are exploring.

With 11 rises in the interest rate between December 2021 and last month, the value of annuities have also marched upwards to reach their highest level in 14 years.

So you may be forgiven for thinking that a rising tide will float all retirement boats but, just like you would if setting sail, a full safety check is required before casting off in search of new waters.

Punter Southall Aspire’s Pension Potential has found how a saver was offered an annuity which would have left him £10,000 a year worse off for life, even amidst a buoyant market.

He was using our online comparison tool to shop around for an impaired annuity, which are typically worth more because poor health means a shorter life span.

But in this case, the difference between the best and worst quote was an eye-watering 73 per cent or £13,759 compared to £3,700, a gap of £10,059. This was based on what he could buy with a £145,000 pension pot.

This shocked me. If ever there were an example of why everyone should shop around for an annuity, this is it.

Had this client gone with the provider which made him this pitiful offer without checking what else was on the market, it could have ruined him. Or, at the very least, knowing how much more he could have got would have haunted him forever.

We know we sound like a broken record when we say check EVERY annuity on the market but it remains absolutely critical to planning for retirement. Yes, this is an extreme example but demonstrates how you should never accept just one quote.

And we obviously want everyone to use Pension Potential but, frankly, if it means someone is saved from making a disastrous decision, compare what’s out there any way you can – there is no shortage of guidance.

Other quotes were more in line with the top one with £13,159 and £8,191 respectively.

The average disparity across general annuity enquiries Pension Potential has managed was, by contrast, 13 per cent.

But even 13 per cent can translate into hundreds or even thousands of pounds more a year. As we know, every pound counts as we continue to endure a cost-of-living crisis. Once you’ve signed, there’s no going back. It’s a once-in-a-lifetime decision so equip yourself with as much information as you can.

This example really is the equivalent of a cracked timber giving way when safe harbour is out of sight and your radio doesn’t work. Make comparing annuities a must when it comes to your retirement planning check list.

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At Punter Southall, we have a team of highly skilled risk, compliance and legal experts with deep in-house practical experience. Get in tough if you would like a friendly chat with one of us.