Before you purchase an annuity you should make sure you:
- Understand all the key issues?
- Follow the 3 Golden Rules of annuities?
- You will get the best possible deal
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As a qualified financial adviser, and someone who specialises in annuities and drawdown, I worry that many people are not getting proper advice before they purchase an annuity or invest in pension drawdown and therefore are in danger of making the wrong decisions which could seriously affect the amount of income they get for the rest of their lives.
When you want to take regular income payments from your pension pot you must eithire purchase an annuity or investment in a pension drawdown plan.
|Annuity = Guaranteed income for life no matter how long you (or your partner) live|
|Drawdown = Flexible income options, investment control and money can be left to family|
Deciding whether to take income by way of an annuity or drawdown is one of the hardest questions in personal finance.
When Jane Austen wrote “An annuity is a very serious business” in Sense and Sensibility in 1810 she didn't know how that 200 years later annuities would be an even more serious business.
|Annuities are serious|
If you want to take cash and income from your pension pot but don’t want to purchase an annuity, you will be investing in a type of pension drawdown plan.
Drawdown is very simple to understand (more about drawdown) but it can be a complex and risky for the following reasons:
|Drawdown is flexible but can be risky|
If you want to purchase an annuity there are three ways you can do this:
As a qualified adviser I would say you should always get financial advice because there are important differences between arranging your annuity with advice and buying an annuity via a website or from an non-advice broker.
|Financial Adviser||Non-Advice Broker|
|Can advice you which option is most suitable for your circumstances||Can only give you information - they cannot give you financial advice|
|Will give you advice on all the relevant options - e.g. annuities and drawdown||Cannot give you advice on all options and information and some brokers do not sell drawdown|
|Both should get you the same annuity income because all annuity providers the same rates to advisers and brokers. Both will take your health into account|
|Advisers give "two handed advice" - i.e. unbiased advice on all options||Brokers are generally "one handed" - i.e. are biased towards the policy they are selling|
|Will agree a fee which can be paid out of pension pot||Will get paid a commission from your annuity|
If you think I am making it up when I talk about "two handed advice", please read my article Beware the one-handed broker or read my guide ‘Retirement Advice - an art or science?’ to find out more. This guide was written for financial advisers but you can read it as well.
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This website is run by William Burrows and publishes generic information on annuities, drawdown and other related retirement income matters. Any information you use is at your own risk and does not constitute financial advice.
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