A new report from Standard Life highlights the fact that many people are unaware about annuities, despite the fact many will need to arrange one to buy an income for retirement.
The research indicated that some 48% of people in the UK do not know what an annuity is. Women (45%) were less likely to say that they know what an annuity is than men (60%).
A particularly worrying finding was that 58% of those aged between 33 and 44 didn’t know what an annuity is. Of those that did know about an annuity, around a quarter (24%) felt that this type of contract offered poor value for money, even though they are the most conventional way of getting a retirement income from your pension savings.
Annuities offer security
John Lawson, head of pensions policy at Standard Life, said: ‘As life expectancy increases and the prospect of living longer in retirement becomes a reality for many, having a solid understanding of your financial options during these years is important.
‘Being better informed on how your pension can fund your retirement will put the customer in a stronger financial position in the long run. And taking an annuity is one of the most common ways to turn your savings into an income when you retire. Annuities offer you security and a reliable income throughout retirement years.
Get to know your annuity options
‘As people live longer, with some possibly living in retirement for 25 to 30 years, having that guaranteed income stream has obvious advantages. Therefore knowing what an annuity is, how it works and if it’s the right option for you is vitally important.’
Paul Davies, analyst at Which?, added: ‘It’s particularly worrying to see a low level of awareness among those aged between 35 and 44. By this time people should start to think about how they are going to fund their retirement and they should be considering the prospect of having to purchase an annuity one day.’
Tips to help you understand your retirement options
Standard Life published a list of tips to help people understand their retirement options:
- Seek professional financial advice
- Give yourself plenty of time to consider your options
- Research the annuity features and decide on what’s important to you
- Work out your retirement objectives and how you want to fund them
- Ask for a state pension forecast (and calculate your state pension retirement age)
- Don’t forget about the effect of inflation
- If you are in poor health or smoke, you may qualify for a higher amount of income
- Those with bigger pension pots can also consider drawing retirement income direct from their pension savings
- Think about death benefits
- Think about how you can use other savings to top up the income from your pension.