Best annuity rates this month
Whether you are using all or just some of your pension to buy an annuity, it's vital that you shop around to get the best rate and declare any health problems that could make you eligible for a better deal.
Here we compare the rates on annuities on offer this month (April) for someone buying an annuity with a £50,000 lump sum. Here are the results:
Healthy 65-year old
The best rate for a healthy and non-smoking 65-year old seeking a level income on a £50,000 purchase is still from Legal & General which is paying £2,634. Although this has slipped back from £2,661 in March, it remains around £290 a year more than it was paying in October.
For the same policyholder, this time seeking an inflation-linked payment, the best rate is again from Legal & General, exchanging a £50,000 lump sum for an escalating income starting at £1,617. This is the same rate you'd have got in March but it's a small drop since February when it was paying £1,634.
Less healthy 65-year old
If our 65-year old has some health problems, he or she could be eligible for an enhanced annuity. These deals pay a higher rate to people whose health or lifestyle means that they are likely to have a lower life expectancy.
Our quotes are based on an individual who is overweight and has had type two diabetes for 10 years, taking one tablet a day.
The best deal paying a level income is once again from the specialist provider, Just which is paying £2,887. This is a small increase on last month when it was paying £2,857.
However rates have slipped for those seeking an inflation-linked income.
The best rate is from Scottish Widows which is paying a starting rate of £1,808 a year. This is about the same rate you'd have got in March but almost £30 a year less than it was paying in February.
The older you are when you purchase an annuity, the higher the income you will get. Combined with the flexibility of the pension freedoms more retirees are likely to buy annuities at older ages. However, the right option for you will depend on your circumstances.
The best rate for a healthy non-smoking 70-year old was £2,982 from Hodge Lifetime. This is the first time the best rate has dropped below the £3,000 mark this year. In March the best rate was £3,062 from Aviva
For a deal that increases in line with inflation Aviva is paying a starting income of £1,905 a year, around £70 less than last month.
Rates are also falling for older buyers. Although Aviva still leads the way at £3,613, it's around £170 a year less than it was paying in March. For inflation-linked it is paying £2,539 - £119 down on last month.
Older and less healthy
If you buy an annuity when you are older there is also an increased chance of you having health problems, meaning you may be able to get a better rate than you would have done when you were younger.
Rates are sliding here too. A 70-year old who is overweight with type 2 diabetes (as per previous example) would get a level income of £3,267 from Just. The same time last month it was paying £3,334. For inflation-linked the best rate was £2,177 from Scottish Widows.
At age 75, the best level rate is from Just which is paying £3,898, £238 less than the same time last month. For those requiring inflation linked income Scottish Widows leads the way at £2,931 - around £1.50 a year less than March.
These quotes, provided for Moneywise by JLT Pension Decision on 1 April are based on a lump sum of £50,000, are on a single life basis and include no guarantees.
Whatever your circumstances it is always essential to shop around for the best rate – just because one company pays the best rate at 65 it doesn’t mean it will still do so at 67. As our quotes show, health problems may also make you eligible for a higher rate so always be up front about your health, weight, smoking and drinking habits as well as any illnesses you may suffer from or medication you take.
If you are married or have someone that depends upon you for money you may wish to choose a joint life policy that will pay an income to your partner if you die first or opt for a plan with a guarantee. These plans guarantee to pay an income for a fixed period of time irrespective of when you die. Guarantees of up to 30 years are available.
All of these elements do reduce the income you receive. However, they can provide vital security for loved ones.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.