Accepting the income offered by your pension company on retirement


This is potentially one of the most costly mistakes you could make and it could bring about otherwise avoidable catastrophe for your spouse or partner.

When you started your pension plan, you would have given an expected retirement date. This may not be the date you end up retiring, but nonetheless your pension company should get in touch a month or two before that date.

They will offer you an annuity. This is the product where you swap your pension fund for a fixed income. Their offer is very unlikely to offer:

1. The highest income available in the wider market place.
2. The mixture of benefits that fit your needs and circumstances.

Your pension company is obliged to do nothing more than make you an offer.

A quick check today showed a 22% gap* between the best and the worst for a 65 year old male. So you stand to lose as much as a quarter of you whole retirement income by not asking an Independent Financial Adviser to shop around for you.

A comparison between the above and an annuity which would provide an increased income each year and a spouse’s pension could cut the income by a further 50% or more.

Here are some of the questions you need to ask before committing to this irreversible spending decision:

1. Do I need my income to increase each year? This will depend on your state of health and age at retirement.
2. Do I need to make provision for my spouse/partner should they survive me? What provision do they have?
3. Is it wise to take the lump sum I am being offered and take a lower income?
4. Do I want my income to be paid for say 5 or 10 years from when it started should I die prematurely?
5. Am I comfortable with my pension dieing with me?

If the answer to the last question is no then there are alternatives that should be discussed with a properly qualified Independent Financial Adviser.

In any event, consult us before making a decision or you could live to regret it!

* Based on a male aged 65 wanting a level income which would be guaranteed for 5 years from commencement even if he were to die

Information Source: Exchange. 11.7.08