Why Four-in-10 Over-55s Will Work Part-Time in Retirement

It is an unfortunate fact that the returns people have come to expect from their pensions has fallen considerably over the last decade and as a result many are finding that their pension income will not meet their requirement for income.

This is due to many factors including; poor investment returns, lower rate annuities, an increase in the cost of living, and low interest rates. As a result many are electing to remain working beyond retirement.

It has been suggested that as many as four in ten will work at least part-time in retirement to supplement their pension income.

Whilst this may be achievable for many shortly after retirement, the danger is that the income shortfall will not go away and at some point in the future part-time work will not be achievable. 

Future generations should take note of this statistic and act now at a younger age to ensure that they will have sufficient income at retirement age.  Putting a percentage of your income to one side through pension, savings or ideally both will give a much greater chance of a happy and relaxing retirement.

The government’s new auto enrolling pensions for all employees will at least ensure that everyone has a private pension, but it is up to the individual to ensure they will have enough for their needs at their desired retirement age.  Working beyond retirement to supplement a pension is only a temporary solution, it is not a long-term fix for underfunded pensioners and this issue can only be rectified if it is identified at a younger age and acted upon.

The Financial Advisers at The Money Map offer pre retirement counselling aimed at working out how much of your salary you should put to one side in order to meet your retirement goals.  It is vitally important that you know how much you are due at retirement; it should not come as a shock when it is too late.

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How to avoid out of date annuity advice

The income in the retirement market has evolved a great deal.  People approaching retirement now have a number of options available to them when deciding which route to take to create the most appropriate kind of income.

In days gone by, people who were retirement planning had built up pension funds and only had the option of using their pension provider for an annuity, and they got what they were given. Since the introduction of the Open Market Option in 1975 and other developments such as Income Draw-down in 1995, pensioners have begun to have more flexibility.  However, the increased level of options has also increased the requirement to seek advice.

There is no such thing as a straight forward annuities purchasing. When retirees have decided that an annuity is the most appropriate one for them, they then need to decide the benefits that they want attaching to their retirement income.  This is even before they decide whether a conventional annuity or an investment annuity is the way to go.

The options that can be included on a “basic” annuity can include a level or increasing annuity. Before purchasing an annuity you will need to ask yourself a lot of questions.

 If an annually increasing income is required, how much should it increase by? 

Would you want a set annual increase, would you want an increase by the Retail Price Index (RPI) or would you rather it increased by the Consumer Price Index (CPI)?

Would you want your spouse to benefit from the pension if you predecease them?

Would you want them to have the same level of pension, 2/3rds or half of what you were receiving?

Do you want to build in any guarantees of pension payment, so that the pension does not die with you? 

How long would you like the guarantee to last, 5 years, 10 years? 

Would you like you income paying in advance or are you comfortable receiving the income in arrears?

What impact with any of these options, will there be on the amount of income you receive?

If you know the answers to all the above, you can quite easily purchase your annuity, on your own.  Then, out of the 20 or so annuity providers, you’ll need to assess who is currently offering the best annuity rate.

Pension and Annuity Advice is very important, the Pensions market is evolving all the time and you need to make sure it’s up to date and relevant to you. Everyone is different and at The Money Map we strive to help you find the option that works for you.

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What the EU Gender Directive means for pensions and annuities

From the 21st December 2012 it will no longer be possible to base retirement annuity income rates on gender. This has now been classed as discrimination under a new EU directive.

When preparing your retirement planning, insurance providers look at a number of aspects before they assess the income that they will pay you. Some of these are as follows:

  • Age
  • Health
  • Address
  • Gender

The reason gender is taken into account is that women currently out-live men under government statistics. Insurers take this into account and offer men higher annuity rates. The December 2012 legislation changes will mean that men and women will receive the same amount in income from their annuities.

Men who are due to retire after the 21st December 2012 will almost certainly have a reduced pension than what can be achieved at present, even with the low annuity rates being offered now. Whereas women will potentially see annuity rates rise. It could well benefit women by deferring drawing a pension until after this date.

Example: If a retiring male takes out a joint annuity to provide for himself and his spouse then passes away, under the new legislation his spouse would potentially receive less of his pension.

As things stand now annuity rates between various providers can change by up to 27% from the lowest to the highest provider. The Money Map has access to the whole market to enable us to obtain the most suitable quotation for you. We understand that each client is different and requires individual advice.

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Variable Rate Annuities

Variable Rate Annuities, otherwise known as Investment Linked Annuities, gives the holder the potential of an increasing retirement income when compared to conventional annuities.  You do, however, need to be happy linking your retirement income to the volatility of investments which could include investments linked to the stock market.  This means that variable rate annuities have greater associated risk than standard annuities, due to the fact that the income levels received can vary each year as they are based on the performance of the underlying investment. Ultimately, the income levels can go down as well as up. 

Why choose a Variable Annuity?

Conventional annuity income has reduced considerably for some people in the UK, mainly due to historically low annuity rates, and lower than expected investment returns on pension funds. Consequently some people are approaching retirement with a lower income than they were expecting.  Also, due to difficult market conditions for some time the new retiree may well have a lower pension value than they could have had several years ago.

The variable annuity allows you to withdraw an income from your pension and leave the rest invested to hopefully grow with the markets.  Should the pension fund grow this will allow the facility to increase the income if required. It also allows individuals to continue their participation in the investment markets and not become disinvested merely because they reached retirement age. However, should markets fall their future income could also fall as there will be less money available.

Variable annuities generally favour those who have several sources of income and as such are not wholly reliant on this pension income and/or those who have an adventurous attitude towards investment risk.

If an individual does not fall into either of the two categories above it is likely that this sort of planning  would not suit their requirements and the may be served better by searching the market for the best rate conventional annuity.

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Who Qualifies for an Impaired Life Annuity?

When approaching retirement it is vital to shop around and ensure that you purchase the best possible income (annuity) from your pension fund for your retirement.

This becomes even more important should you suffer from a serious medical condition.  This is due to the fact that some annuities can be medically underwritten and the income offered by a provider is based on the length of time they expect an applicant to survive and be in receipt of a pension income.

Someone who suffers from a serious medical condition may well qualify for an impaired life annuity, if so they can expect to receive a higher income than they would have received other annuities. 

The increase in pension income will be dependent of the severity of their condition, the greater the severity then the shorter an applicant’s life expectancy will be – therefore the higher the income provided from an impaired life annuity will be.

Typical medical conditions that may qualify for an impaired life annuity include; heart disease, stroke, high blood pressure, kidney failure, multiple sclerosis, certain types of cancer, chronic asthma, diabetes and obesity, although other conditions may well apply.

An applicant will be expected to complete a full application form and give details of all conditions, dates of diagnosis and treatment, a list of any medication will be required along with authority for the impaired life annuity provider to converse with an applicant’s GP and request any relevant reports and documentation.  They may also be required to undertake a medical examination by a general practitioner in order to satisfy the provider of the medical claims made, this will be at the providers’ expense and an applicant should not be expected to pay for this.

It is important to understand that many providers of annuities do not provide impaired life annuities so simply providing your pension provider details of your ailments may well not result in you receiving a greater income.  So a potential annuitant should ensure that they research the market place thoroughly to ensure that all providers are considered, there are even providers that solely provide impaired life annuities. 

By far the simplest way of achieving this is to employ an Independent Financial Adviser to research the market place on your behalf, they will have computer systems that can do this quickly and efficiently.

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Could fiscal and monetary policies leave pensioners out of pocket?

There are currently 12.85 million pensioners in Britain, many of whom are being greatly affected by the Bank of England’s attempts to kick start the economy.  The record low level of interest rates, the historically low level of annuity rates and the increasing trend in inflation are all factors which have reduced incomes and eroded capital and reduced retirement incomes.

The Bank of England’s own figures estimate that low interest rates have cost savers £70 billion in interest since 2008. Now, the most recent government attempts at cost saving have seen the cutting of the winter fuel allowance and the introduction of the notorious “Granny Tax”, which in essence is the freezing or abolishment of the Age Related tax allowance.

One of the main methods that the Bank of England have attempted to revive the economy since 2008 is via Quantitative Easing.  This is where extra cash is pumped into the economy to encourage greater spending.  This has, to be fair, helped stimulate some growth, but at the same time, whenever people spend more, increasing demand, this in turn helps increase process and ultimately the rate of inflation.

The use of Quantitative Easing has resulted in the Government buying a number of Gilts, which in turn raises their price. A Gilt is essentially a loan made to the Government when it needs to raise capital. The increase in Gilt prices has reduced their yields and it is these yields that determine rates for annuities. When they are lower, annuity rates are lower so the income which pensioners can secure from their pension funds is lower.

The other way in which legislation has affected retirement income is the reduction in the maximum level that can be accessed under a normal pension drawdown contract. The Government recently reduced the maximum levels of income allowable in any year from 120% to 100% of Government Actuary’s Department (GAD) rates. This has affected an estimated 325,000 income drawdown pensioners.

The total impact of all these policies has been outlined in a recent study by the Centre for Economics and Business Research has predicted that the combination of the above Fiscal and Monetary measures will cost the average pensioner £451 per annum by 2013-14.

Please contact us for more advice on annuities.

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Annuities: A prediction for 2013

With the continued decline of annuity rates is it reasonable to expect them to recover at some point or must we now accept that rates are low and will stay that way?  Well to answer this we firstly need to look at what has driven rates over recent years.

Longevity: It is a very pleasing fact that generally we can expect to have a longer life than that of our parents.  This is due in part to overall healthier lifestyles and in part due to advances in medical science.  Whilst this is a satisfying statistic, it does impact on the rate a provider of annuities is prepared to offer as they now expect to be paying these policies for longer than they ever have before. This is something that is not expected to change so there is no potential for rate increases here.

The Annuity Pool: All pensioners that bought an annuity had their money effectively pooled together, this meant in practice that a healthy individual’s money would be grouped together with people who were not so healthy and had a shorter life expectancy.  An annuitant would benefit from the money of those who died early and left their fund in the “Annuity Pool”. 

Specialist annuities are now available for those with shorter than average life expectancies, giving them a better rate to reflect. This is more than fair; however it has greatly reduced the effect of the annuity pool. Again, this is not something that we would expect to change so no potential for rate increase here either.

Gilt Yields: There is an un-doubtable link between Gilt Yields and annuity rates, gilts have always been the benchmark for annuity rates and they are currently trading at an all time low.  This is fuelled by uncertainty in financial markets which is cause by the Euro Zone debt crisis, it would be reasonable to assume that these can only fall so far and we may well be seeing rates close to the bottom now.  So, as the green shoots of recovery start to show, the long term gilt yields should in turn start to show more positive numbers.  Should this happen, annuity rates are expected to follow.  This is a positive outcome but it may take several years to take effect.

Conclusion: There are several factors that have forced annuity rates down such as the reduction in the annuity pool and average life expectancy increasing, these are facts that are not likely to change and it would be unrealistic to expect annuity rates to ever return to the figures we have seen in the past.  However, the effect of the debt crisis and falling gilt yields cannot be overlooked, these rates will recover at some point and will have a direct effect on annuity rates, but it is likely to take some time for this to take effect. So for 2013, expect rates to remain low.

Contact us for more advice about annuities and how to get the best out of yours.

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How to use our annuity calculator

The choices you make when deciding on the most appropriate income at retirement are decisions that will stay with you for the rest of your life. It is vitally important you make the right decision so professional guidance is always recommended.

Using our annuity calculator is the first step to ensuring that you make the right decision. It will give you an indication of the level of income available from the pension fund which you have accrued.

All personal pension providers should offer you an Open Market Option with your pension fund. This is basically your right to take your pension fund and obtain the best income from all the other pension providers, depending upon who is offering the best annuity rate at the time of your retirement.

The annuity calculator will take into consideration any features that you would like to add to your retirement income and it will also consider any lifestyle or health issues before giving you an indication of the level of income that you can expect.

The first details that you will need to provide are your name and date of birth. In general terms, the older you are the higher the annuity rate. This is purely because as you get older your life expectancy, based on Government statistics, reduces. If you want to provide an income for your Spouse should you predecease them, their name and date of birth are also required.

Should you want us to contact you to provide you with advice regarding your annuity choice, we ask you to provide your contact details. At the very least, we will require your post code, because where you live also influences the annuity rate that you will be offered.

Once your basic details have been added, you move to Step 2 of the process, which asks for more information regarding your pension fund and how you would like your pension income to be structured.

The fund value you have available to purchase your annuity, after any tax free cash has been taken is key. You must always remember that it is possible that your fund could alter from asking for quotes to actually purchasing your annuity. We can advise you on how to minimise any fluctuations.

There are then a number of features which you may wish to add to your pension income. As previously mentioned, you may elect to provide an income for your widow/widower. You may want to guarantee that your pension is paid for a minimum period of time, even if you die prematurely. It is normally possible to guarantee that your pension be paid for either 5 or 10 years.

The final feature which you may wish to include is a pension which increases every year. If you thought that you were to live for a long time into retirement and you wanted your retirement income to keep pace with inflation, you could opt to have annual increases.

The important point for consideration when deciding on all these options, is that the initial pension you receive will decrease for every extra benefit which you add.

Please call us for any advice on annuities on 0800 848 8250.

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What is the ‘Best Annuity Rate’

One of the most important financial decisions you will make in your lifetime is when and whom, to draw your accumulated pension from.

This is called an annuity. If you are aged between 55 and 77, you can elect to take an annuity any time during these years.

You are able to start receiving pension income from the age 55 onwards.

When you decide to draw your pension/annuity you will have two main choices:

  1. Draw your pension from the existing provider, or,
  2. Go to the market and choose the most competitive annuity for your circumstances.

By going for option 2, you are never going to end up with a lower pension, because if the market cannot offer a greater income, you opt to receive your pension from your existing provider.

Therefore it is good financial sense to review the market (and activate your ‘Open Market Option’) in order to achieve the ‘Best Annuity Rate’.

It can be even more important to do so if you are a smoker, have any existing or previous health conditions as you may be entitled to an enhancement on your pension. You may not get this taken into consideration with your existing provider.

In drawing your pension there are several other important decisions you will need to make. Do you require a single or joint pension? A level or increasing pension? Would you like it to be guaranteed? All of these things can add up to produce a confusing situation at a very important stage of your financial life.

This is why at ‘The Money Map’ we will simplify the annuities process for you, explaining in plain English and ensuring you receive the highest income for your pension fund that suits your requirements.

The Process

  • Call The Money Map: 0800 8488250, arrange a free financial review or contact us via our online form.
  • First of all we will discuss with you relevant annuity options and help you decide which suit your personal circumstances the best.
  • We will then research the annuity market to achieve the highest pension/income available for you.
  • Compare this to the annuity quote from your existing provider.
  • Help you complete any paperwork required to start receiving your income whether from your existing or new provider.

At The Money Map we are totally independent and we pride ourselves on high service standards and client satisfaction, as part of this service we do not charge any fee for the initial research and ‘open market option’ quotations on your pension/pensions.

As part of our process we will provide you will copies of our research and a report explaining our recommendation and how much financially you would receive extra per month/year by choosing the highest annuity rate for your situation.

Therefore you can have the knowledge of the ‘Best Annuity Rate’ for your pension at no cost to yourself with no obligation.

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What is an annuity?

You can convert your pension savings into a regular income, which will be paid for the rest of your life.

This is called an annuity. If you are aged between 55 and 77, you can elect to take an annuity any time during these years.

There are a number of options for you to consider when choosing an annuity, each of which can affect the level of income that you will receive in retirement.

One of the most important aspects is being able to draw up to 25% of your pension savings immediately as tax free cash. The remainder can be used to buy an annuity, proving a regular income at intervals that you determine.

Annuities come in two main types of annuity. A conventional lifetime annuity is the most popular choice as it guarantees you a secure income for life. The amount you receive can be fixed or can increase over time. You will have to decide at the outset what you would like to do to enable you to budget your lifestyle.

The other option is an investment annuity which is linked to the stock market. As with all stock market investments, there comes an element of risk and your income is less secure. You do however have more flexibility. Should this particular area interest you then I would strongly urge you to discuss this with one of our annuity specialists.

Types of pension schemes that you are able to convert to an annuity:

  • Stakeholder pension
  • Group personal pension
  • A defined contribution pension with your employer
  • A free standing additional voluntary contribution scheme
  • Retirement annuity contract
  • A Personal pension

With all of these contracts its best to speak to a specialist adviser to ensure that you are making the best and most suitable choice for your circumstances. The main reason for this is because once you have made your choice dependant on what you choose it can not be amended.

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