Why shopping around could be crucial when choosing an annuity

Thanks to rising interest rates, annuities are back in fashion, as retirees look to capitalise on the higher, more attractive incomes that they offer.

2023 was a record year for annuities

According to the Association of British Insurers, annuity sales in 2023 totalled £5.2 billion. This is the highest annual value since 2014, and a 46% increase on the number of sales recorded in 2022.

During 2023, 72,000 annuity contracts were sold. Last time figures came close to this number was back in 2016, when the number was 75,000.

These figures are a good reflection of the desire many people now have to lock in a guaranteed income for their retirement.

Read more: As annuity rates rise, are they a good option for your retirement income?

While rising rates are great news, it’s increasingly important to shop around 

Annuities come with several unique benefits, not least that buying one could provide you with guaranteed income for life. 

However, the gap between the best and worst rates available on the market has widened. In fact, according to Professional Adviser, the gap is the biggest seen for four years. 

And your age could make a significant difference. According to findings from retirement specialists at Just Group, the gap between deals is typically far higher at age 75 than you may encounter at age 65. 

This means that if you’re an older retiree looking to buy an annuity, you’re more vulnerable to losing out on extra income. In fact, the difference between the most competitive annuity provider and the least could result in you losing thousands in extra income. 

For instance, if you’re a healthy 75-year-old, you could find that you can secure about 16% more income – simply by shopping around for the best deal. 

The younger you are when buying an annuity, the lower the percentage difference – as illustrated in the below chart.

A graph with lines and numbersDescription automatically generated

Source: Just Group

So, while better rates make annuities a more attractive proposition, it’s crucial to do your homework before you commit.

This is where professional input from a financial planner could pay. We can help you to find the best retirement solution for you. If that’s an annuity, we can do all the legwork to ensure you receive the best possible rate for the type of pension income you want.

We’ll also help you to determine the right type of annuity to suit your needs, taking all your circumstances into account.

A variety of annuity options to choose from

Your choice of annuity will depend on both your needs, and where in the world you live.

The three main types of annuity are: 

  • Lifetime – provides a fixed income until your death and can be held individually or jointly. When you die, leftover funds can’t usually be transferred to your beneficiaries.
  • Fixed-term – pays a fixed income for a pre-agreed length of time. At the end of the period, you’ll receive a lump sum, or “maturity value”, from the provider.
  • Guaranteed – pays a guaranteed income for a set number of years, regardless of whether you die before the term ends.

You could also opt for an annuity that will continue paying a reduced sum to your spouse after you die, or one that increases in line with inflation each year.

If you’re living in the US, you may find a fixed index annuity an attractive proposition, as they tend to provide a reassuring balance of security and potential growth. You can read more about these in a recent article, and find out how they may support your financial plan.

Another important reason to shop around is that annuity rates are determined by several factors, including interest rates, life expectancy, and economic conditions. While a young, healthy person is likely to receive a lower annuity rate because the provider will expect to pay a regular income for longer, different providers will give varying weight to each of these elements. 

Another consideration when shopping around are the various charges that may apply. An offer that appears attractive may not be as good as it first seems once you account for the associated charges.

Again, this is an area we understand and know how to navigate.

Get in touch

If you’re keen to learn more about how annuities could factor into your retirement plan and want to ensure you find the right deal for you, please get in touch. 

Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

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