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Buying an annuity: How to shop around

Taking benefits from your defined contribution pension scheme is a big decision. Some decisions are irreversible, so it’s important to make sure that you’re getting the best deal.

It’s well worth planning ahead when you decide to buy an annuity – it can take time to gather the necessary information, find the right annuity provider and set up the annuity that you want.

Where to start when buying an annuity

Assuming you can take your benefits, the first step is to inform your pension provider or scheme administrator  that you would like to start drawing your retirement benefits. In many cases, they will have written to you beforehand to ask you when you want to start drawing a pension. You should also let your provider know the  date that you want to start.  drawing retirement benefits. Your provider should then provide you with a valuation for your pension pot. They will also probably provide you with a quote for an annuity if you purchase it from them. Do shop around before you accept any annuity quote – annuity rates can vary significantly between different providers. Shopping around is normally called the open market option (OMO).

If your pension scheme includes a guaranteed annuity rate, (particularly if it is an older policy), this could be very valuable as the annuity rate offered could be higher than those you may be offered by annuity providers on the open market. You can check with your pension scheme or provider, but they should tell you if you have a guaranteed annuity rate. You should also check any quote that you receive includes all of the options that you want. For example, if you decide to take a tax-free cash sum, less money will be available for annuity purchase, so the amount of annuity income you receive will be lower. Think carefully about which options are relevant and  what type of benefits you want to include. This way you can avoid receiving lots of quotations which can be confusing. If you’ve got more than one pension pot, it may be worth combining pots as you may get a higher income from a single, larger pot than you could get from several smaller pots. Some annuity providers also have a minimum purchase price. Transferring pension pots can take some time so, you will need to factor this extra time into the process.

Take your time with your decision

Buying an annuity is a decision that is difficult to reverse and therefore you should take your time with any decision that you make.

You should therefore consider taking advice from a regulated financial adviser to make sure that you select the right annuity for your circumstances. Often regulated financial advisers will be able to obtain the same rate for you after paying for their advice as you would get if you buy the annuity direct from a provider, and the latter option gives you no consumer protection.

Once you have received an annuity quotation that looks right for you, the annuity provider will usually guarantee the annuity rate for anything up to 14 days and sometimes longer, to allow you to complete the annuity purchase. If you’re buying an annuity with a different pension provider, you will have two sets of forms to complete, one set for your current provider and another set for your new provider so, you will need to factor this extra time into the process.

If you're applying for an impaired life annuity or an enhanced annuity, you will probably have to provide medical information or possibly undergo tests or examinations – don’t forget to factor the additional time for these into the process too. An impaired life annuity pays out higher levels of income than a standard annuity, to reflect the fact that life expectancy is lower due to a particular medical condition.


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If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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