Should I Buy An Annuity?Posted on: 19 January 2009 by Gareth Hargreaves
50connect reader Gerald asks independent financial adviser Peter McGahan about taking out an annuity.
Firstly, it’s easy to understand why you feel this way given the market conditions. In finance terms we call this 'capitulation' and it’s normally the low point of the market, i.e. when the domestic investor has had enough.
Emotion is one thing and it plays a large part in any decision making but you may be better really considering what you are doing before you jump into anything.
Secondly, holding the rest in cash is actually a good thing, deciding when to get into the market is another. To 'stay risk averse' however has its benefits and disadvantages and as long as you know what they are - ability to beat inflation, coming out of investments at the wrong time etc - that’s fine, as you don’t want to be kicking yourself later.
As for annuity rates, yes indeed 7.32% is a good annuity rate but have a close look to see what you are getting with that. Do you have any guarantees such as a five-year guarantee for your spouse at 100% of the pension and 50% guarantee thereafter?
Does the pension increase in retirement or stay level as inflation will erode its value?
All things being equal that’s a fair rate. Your independent financial adviser should run your pension through an annuity quote system and that will show who is offering the best pension terms for you.
As for your protection, whilst Aegon are a massive organisation, those words used to mean something. It's possible anyone can go into liquidation but an organisation of this size is unlikely to be unable to meet its demands.
Notwithstanding that, 100% of your first £2,000 is covered by the FSCS, plus 90% of the remainder which is good to know that you have that level of fallback.
I hope this helps but be sure to seek pension advice before proceeding.
Over the last 10-year cycle my SIPP fund has not moved forward and indeed to keep abreast it has required ongoing input from my financial advisor and I.
I am fed up of worrying over it. I am 65 in June and the remainder of the fund - I have already taken the 25% tax free element and two tranches of draw down - is virtually held in cash and is at a standstill given interest and management charges.
Given I now wish to stay risk adverse, I am thinking about the purchase of an annuity with Aegon Scottish Equitable with a 10-year guarantee. They have quoted 7.32% and I am informed this is "good".
Are Aegon/ SE safe given I don't want to spend my time managing my SIPP fund?
Turning towards an annuity now may be a wise investment.
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