Monday, 3 September 2012

The annuity trap

Just look at what terrible value you get when you buy your pension annuity. It's the income for life you buy using the funds in a personal pension plan.

Say you have saved up a pension pot of £100,000.

A single 65 year old man would get £6,035 a year for that, with no annual increases.*

Or a couple, wanting a 3% increase each year would get £3,698. If one dies, the survivor carries on receiving half the money.

BUT all the original fund is spent. The £100,000 is gone.

Compare that with today's best fixed rate savings accounts.

They pay over 4%, according to Moneyfacts.

So you would get £4,000 a year for £100,000. You'd still be able to get your original savings back. And you'd be able to move the money from time to time to take advantage of higher rates.

You don't have to buy an annuity any more.

But there are complicated rules about how you can use your pension pot, so most people end up buying annuities anyway.

And they end up losing out.

*Figures from Hargreaves Lansdown.

1 comment:

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