Annuity Delay May be Costly, Take Benefits Sooner Rather Than Later

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My Pension Expert look at a recent study warning people not to delay purchasing annuities in the hope of receiving a higher income

My Pension Expert
The use of the open market option should be used to shop around when looking for annuity rates.

As annuity rates free fall, people are being warned not to delay in purchasing annuities in the hope of receiving a higher income. Rates are likely to remain low for the short term.

This fall has been due to the falling gilt yields, the returns which insurers receive from investing in government debt. The EU Gender Directive means that there will be tougher capital requirements, which is known as Solvency ll. This is yet to be priced into ratings. The annuity is what converts the pension fund into a guaranteed income for life.

This is most commonly bought with the cash which is within a pension fund when the holder retires. The amount of money which you would revive would be calculated by the annuity rate at the time which you go to purchase it. It is impossible to known when a good rate would be available.

The advisors, My Pension Expert, show that there has been twenty three cuts within annuity rates since the beginning of July 2012. This has been from ten different insurers. The forecast for annuity rates is to stay low in the short term. The latest round of quantitive easing, as money is printed, means this will only manage keep rates low during the short and medium term.

This is according to MGM Advantage. To delay your purchase of annuity rates in the hope that rates will recover, would be dangerous, say financial advisers. For this to make economic sense there would need to be a steep rise in rates or otherwise a change in personal circumstances. Calculations by MGM Advantage show that a 65 year old man with a £100,000 pension would be able to buy him a income of £5,901.00 today. A man of 67 who has the same pension could get a better income of £6,165.00.

If the younger man had given up two years of income, he would have give up two years income. The annual income would have increased by £264.00 per year. It would take around forty-four years to recoup the money he lost.

Scott Mullen, an adviser at My Pension Expert said: "I would not defer buying an annuity in the hope rates will improve".

The use of the open market option should be used to shop around when looking for annuity rates.

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Chrissie Sequeira
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