Annuities Explained

Deciding how to use your pension pot when you retire can be a daunting task. Having saved for much, if not all, of your working life it’s important to research and consider your financial options to ensure you have the means to enjoy your retirement.

An annuity is one of several options available to you for using your pension pot to help secure a guaranteed retirement income for the rest of your life.


Annuities in the news

Annuities have been a hot news topic in recent years following the pensions freedoms that came into effect in April 2015. With the passing of the Pension Schemes Act 2015, these freedoms allow anyone aged 55 or over to take some or all of their pension pot as lump sum cash.

Before these reforms, there was little choice and most people had to use their pension pots to purchase an annuity. Yet despite its significant role in retirement provision and its many benefits, consumer perception at the time was that annuities offered poor value and were restrictive.

This correlated with research undertaken in 2014 by the Financial Conduct Authority (FCA) that found customers weren’t shopping around for the best deal and that up to 80% of these customers could get a better deal on the open market.

In the intervening years, further developments by the FCA required annuity providers to inform their customers how much they could gain from shopping around and switching provider. However – and this is still the case today – providers aren’t required to tell you exactly where to locate higher rates.

Is an annuity right for me?

Essentially, these freedoms have given you more choice and responsibility for your pension savings with many different options to consider that are tailored to your needs.

An annuity may be the right option for you if:

  • You prefer the security of a guaranteed income for as long as you live.
  • You would like to provide for the needs of your loved ones by adding certain death benefits to your guaranteed income.
  • You have certain medical conditions, or if you’re overweight or smoke and therefore may be eligible for an enhanced annuity income.

Buying an annuity is a big decision that cannot be reversed, so understandably you may be considering seeking advice from an independent financial adviser. However, the service of an adviser comes at a cost. Knowing where to find an adviser can often be the first hurdle.

Annuity Ready gives you full access to shop around in one place to compare quotes across the whole of the annuity market. However, we understand that in your research of purchasing an annuity that it’s a very important financial decision to make, which you may wish to seek further advice on.

While we’re a non-advisory service, we’ve put together a guide on what to consider if you’re seeking further guidance and / or a financial adviser.

Claim your right to free guidance first

As part of the pension freedoms changes to the pension market, you now have the “right to guidance” at retirement via Pension Wise, the UK government’s Money and Pensions Service. Pension Wise offer a phone call or face-to-face appointment and the guidance they provide is free, impartial and available to anyone aged 50 or over with a defined contribution pension.

The appointment lasts around 45 to 60 minutes and a pension specialist will explain your pension options, explain how each option is taxed and provide you with next steps so you’ll know how to move forward by the end of the session.

You are entitled to this free guidance but be aware this is a single appointment only.

Do your research

The Money Advice service is another government organisation offering free and impartial money advice. The website includes retirement advice, guidance on the different types of pension and retirement income and information on automatic enrolment. It also hosts a directory of retirement advisers which you can search by how you would like to receive advice (in person, on the phone or online). You can then refine your search by what you need help with, the size of your pension pot, the accreditations and qualifications you would like the adviser to have, the language you would like to receive advice in and if you are an employer.

The Society of Later Life Advisers (SOLLA) website also houses a database of advisers that you can search by location or postcode. These advisers have chosen to become independently accredited by SOLLA, a not for profit organisation, and have achieved the Later Life Adviser Accreditation. This accreditation is used to demonstrate advisers have a good understanding of the specific needs of older clients and can explain complex issues. If you’re seeking advice on an annuity later in life a SOLLA adviser may be best placed to understand your needs and those of your family.

As highlighted earlier in our guide, seeking the guidance of a financial adviser comes at a cost to pay for their service so it is down to you to consider whether this is right for your needs.

If you require a financial adviser:

Check they are regulated

Advisers listed on both The Money Advice Service and The Society of Later Life Adviser websites are authorised by the Financial Conduct Authority (FCA) and whether you find an adviser through a government service, online search or word of mouth, it’s important that the individual or organisation you choose is regulated.

The FCA are responsible for regulating the financial sector, helping to ensure the market is honest, fair and effective and that consumers always get a fair deal. If you are unhappy with the advice you’ve been given, or you feel you’ve been mis-sold, using an FCA accredited adviser allows you the opportunity to complain to the Financial Ombudsman Service who can take appropriate action, for example order advisers to pay compensation. You can use the Financial Services Register to search for the company or person you’re interested in seeking advice from and check they are regulated by the FCA.

Ask if they are restricted

Advisers who provide financial advice on retirement options can be either independent or restricted. Independent financial advisers are not restricted to specific products or providers while restricted advisers are. It’s important to check the adviser you are interested in using can offer a whole of market service to ensure you have a clear picture of what’s available and get the widest choice.

Look out for qualifications

Legislation requires all financial advisers to be qualified to a certain level - the equivalent of the first year of an honours degree and it’s worth checking that the advisers you’re considering using are. Additional qualifications can show that an adviser is happy to go the extra mile. For example, The Chartered Insurance Institute and The London Institute of Banking and Finance offer an Advanced Diploma which is widely accepted as the gold standard level for Financial Advisers.

Be aware of the fees charged by advisers

After changes to how financial advisers are paid in 2013, they cannot be paid commission and instead must charge a fee for advice about pensions, investments or retirement income products like annuities. Information on these fees must be given before you commit to taking their advice and it is recommended that you ask for a breakdown of costs so you understand exactly what the adviser will be doing for you. You should also check when you’ll be expected to pay and if there’s a fee for your initial consultation as many advisers offer a first meeting for free.

Shop around and compare the whole of market with Annuity Ready

If you’ve made the decision to purchase a lifetime annuity, Annuity Ready can help you compare quotes from annuity providers across the whole annuity market including Aviva, Canada Life, Hodge, JUST, Legal & General and Scottish Widows.

Simply enter your information once and we’ll search the open market to see if we can find you a higher income than your current pension provider. If we find a quote you’d like to proceed with, you can buy online with most providers or call us and speak to one of our team.

Unlike a financial adviser, we don’t charge you to use our service to be able to compare the whole of market annuity rates. If you choose to arrange a policy by using our service, we will receive a commission payment from the annuity provider. This is a percentage of the policy’s purchase price and is covered within the pricing of the annuity shown in your quote.

So if you’re ready to begin comparing quotes, let’s get started.