Where to buy an annuity and what it costs

Where to buy an annuity and what it costs

If you're looking to purchase a life-long income with your pension savings, there's a lot to think about when making the irreversible decision about where to put your money. Where can you find a good annuity? How much do they cost?

Where to buy

First of all, your pension provider may offer their own annuity six months before you retire, or as soon as the business is notified that you're retiring. It's a quick and easy option, but with a pension pot that's likely worth tens or hundreds of thousands of pounds, you should definitely exercise your right to shop around and look for an annuity that offers a higher income.

The time put into looking through annuity comparison sites and collating a list of the various products offered by annuity providers is definitely worth it. Ask friends and family whether they've found good deals, or simply enlist the assistance of a financial advisor.

If you want to compare a variety of annuities, the Money Advice Service's comparison tool is a particularly useful resource, and will give you an idea of the best deal available to you.

What do they cost?

Strictly speaking, an annuity costs as much as the pension funds you use to purchase it, however, this definition fails to take into account your lifespan, annuity rates and the effects of investment returns.

  • Lifespan

In terms of lifespan, the longer you live, the more income you'll receive, and the closer you'll get towards receiving back (or exceeding) the amount you paid for the annuity in the first place. The later on in life you purchase the annuity, the higher income you'll receive.

  • Annuity type

If you go for a level annuity, its value may depreciate over time as inflation and other market effects increase prices of goods and services. Of course, some level annuities can also offer great rates, higher than those commonly found on the market.

You may want to combine an annuity with a drawdown product which can give you the best of both worlds. A ‘hybrid’ product can give you a regular income from the annuity and potential for growth with the drawdown.

The cost of an annuity is down to your attitude to risk and your ability to find a good deal. Do your homework, shop around, and you'll find an annuity that works for your future.

A Financial Adviser is best placed to help you make these decisions, after understanding your personal finances and assessing your attitude to risk.

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