Annuities 'of interest to retired investors'

19 October 2011

Purchasing an annuity may be a financial plan that is of interest more to retired investors than younger people, due to the advantages they offer.

The Motley Fool reports that the product dates back a number of centuries, although there was a collapse in the market as a result of the fall of the Roman Empire.

But annuities are becoming a popular option once more for those who are in their retirement and seeking ways to boost their income on top of their pension.

The site pointed out that it is possible to convert a pension into funds that can be placed into an annuity, as this can be done by taking the cash released when the pension is first drawn and using it to invest in a purchased life annuity.

Tax benefits

According to the publication, this can be a good option due to the fact that it offers tax benefits for those who want to protect their assets as much as possible.

"You're allowed to take an 'open market option', which is a fancy way of saying that you can shop around and buy your pension from a different insurance company," it was noted.

Those considering buying an annuity also need to be aware they could boost their return from the product by as much as 15 per cent if they shop around to get the best possible deal.

It was also highlighted by the site that people who have bought an annuity are likely to live longer than those who do not have one, although this is because individuals with medical problems usually decide to opt for another financial product to provide income for their retirement years.

Impaired life annuity

"However, people with health problems can obtain a higher income from an "impaired life annuity" which pays more because their condition has lowered their life expectancy," the site said.

Speaking on the FT Money Show podcast earlier in the month, Steven Lowe, management board member of the Pension Income Choice Association, stated that a lot of people are not aware they are able to shop around for an annuity to get the best deal.

He was commenting after it was recently revealed by the Association of British Insurers that firms will no longer be able to provide consumers with an application form for an annuity when they contact them regarding their retirement planning.

This move promoted a mixed reaction, with some people claiming it will not help to protect individuals from being ripped off by annuity providers.

Posted by Tom Papworth