Annuities: Are we storing up long-term problems?

Annuities: Are we storing up long-term problems?

An annuity is a financial product that converts your pension savings into a regular income for the rest of your life.  From April 2015, you’ll be able to withdraw as little or as much of the money you want from your pension when you reach 55. Annuities have a number of benefits but also a number of downsides, which have given them a bad name in the past. Which – the online consumer champion- explores the pros and cons of annuities – an article worth reading.

In the past the real downside has been that the customer has had no choice of when they would have to buy an annuity. As annuity rates fluctuate, you may be unfortunate to retire during a period of lower rates and up until this April, you would have had to simply accept that low rate and buy your annuity.

Now,  thanks to the budget, there is consumer choice.  You can decide to take your money from your pension pot and invest your pension savings how you like. As a result of this newfound freedom, PWC believes that sales of annuities will collapse by 75%, from a market worth 12bn to 3bn. What’s more, PWC believe this added choice means that 63% of people intend to consult independent financial advisers about their pensions, to steer them in the right direction.

Whilst it has to be good news that you can now choose what to invest your hard earned pension money into, it is slightly worrying that down the line some people won’t make provisions for their yearly income to live.

According to a blog by Patrick Collinson in the Guardian, many people underestimate how long they think they will live. In fact, Collinson was celebrating his father’s 88th birthday and extolling his father’s annuity. So our question is, are we storing up problems for ourselves?

 If you require any help deciding what to do with your pension funds, or understanding if you need an annuity, contact Searchlight Investments, we can give independent advice to help you make an informed decision.

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