It is generally accepted that there are three ways to arrange an Annuity:
- Accept the Annuity offered to you by your current pension provider
- Shop around yourself by calling the Annuity providers to get their quotes
- Use an Independent Financial Adviser (IFA) to shop around on your behalf
Option 1 rarely produces the best result. Retirement experts suggest you always use the ‘Open Market Option’ to shop around for the best possible Annuity rate and to see whether you qualify for an Enhanced Annuity due to health or lifestyle issues.
That leaves you with options 2 & 3, but which is best? Shop around yourself or use an IFA?
Shopping around yourself can be time consuming. Calling the likes of Aviva Annuities, Legal and General, Prudential or Canada Life, to name just four providers, takes time. Once you have the quotes you then need to compare them all and work out which one is right for you. Add in finding out whether you qualify for an Enhanced Annuity, by calling providers such as Just Retirement or Partnership Assurance, you will probably need to have retired already to find the time for this herculean task.
You also need to look closely at who you are actually speaking to. For example, if you buy your Annuity from Saga Annuities you will actually end up with a Legal and General Annuity.
Using an IFA is the alternative to shopping around yourself.
Not only will an IFA shop around on your behalf for the best rate but they will also advise you on structure of your Annuity. For example, should you include a guarantee or a spouse’s pension, should the income be level or index linked? An IFA will also advise you on whether an Annuity is actually the best option – should you be considering an alternative? Would Income Drawdown be better or perhaps an Investment Linked Annuity?
An IFA can also negotiate with the providers to get the best possible rate.
One of the major misconceptions about using an IFA to arrange an Annuity is that it will cost you more, or you will get less income as the commission has to be accounted for. This is simply not the case. If you go direct to the insurer to arrange your Annuity, the commission will still be taken – it will simply be retained by the insurer.
Of course you could shop around yourself, but if you want advice on how your Annuity should be set up, who is offering the best rate, alternative options to an Annuity or just to save time then find an IFA you trust and work with them to make sure you get the right result for you.
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