6 September 2012

Should I ... Buy an Annuity?

Now there's a difficult question. Let's assume here that you are over 55 (so you can take the benefits from your pension plans - in most cases, anyway), that you need income (because you are retiring or long-term unemployed), and that you have one or more "money purchase" pensions with which you can buy an annuity.
The main advantage of buying an annuity is a secure income for life. But the main disadvantages are that you can't change it once started - a standard annuity anyway, and at the moment we are stuck with all-time low annuity rates. That means the income you can buy with your money purchase pension is not much!
So what alternatives are there? Well, it's possible to keep your pension money invested (risking the ups and downs) and take an income from it - that's called pension "drawdown". It's also possible to defer the final decision by buying a short term annuity - perhaps 5 years. That will give you a pre-defined lump sum at that time with which to buy a lifetime annuity.
No easy answers, unfortunately. It's probably the financial decision which it's most important to take advice on.
Even if you do decide to buy an annuity, make sure you get more than one quote. That's what the "Open Market Option" is about.

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