THE MARKET FOR ‘ANNUITIES’

When the time comes and you start looking for an ‘Annuity’, you will find that there is a marketplace for ‘Annuities’ just as there is for apples or pears. You can go out into the marketplace and look for the best deal for the money left in your Pension Box. So “How much will I get for my money?” you may well ask. The answer is, of course, it depends on what is available in the marketplace. Here it is worth looking at just how a company works out what they can offer as an ‘Annuity’. In fact, the company is taking a gamble. They know that they can invest the money you give them and it is from that investment that they will need to cover their payments to you as well as their costs and profit. The company uses its actuaries (professional gamblers basically!) to calculate the odds of how long you are going to live. That will tell them how long, on average, they are going to have to make payments to you. The actuaries use the information available which essentially gives the life expectation for a person of a given sex and age. These are the odds that they work with, along with what investment return they can be sure of over a longish period of time. So what affects the market price of ‘Annuities’? The longer we live, the longer the companies have to pay out so the less they are likely to offer. The lower the investment return they can get over the long term, once again, the less they can offer.

New “Buy Now” for your ISAs

With the beginning of the new Tax Year (2012/2013), there is the immediate opportunity for doing your new ISA savings/investment. You do not need to wait until the end of the Tax Year. In the case of a Cash ISA this gives you an extra 12 months of tax-free growth if you do it now. With a Stocks and Shares ISA you would be buying at what looks to be a low point in the Market and avoiding the end of Tax Year rush, which tends to drive up investment fund costs.

THE ‘ANNUITY’

Basically an ‘Annuity’ is a guaranteed income. When you buy an ‘Annuity’, you basically are swapping the 75% cash remaining in your pension box for an income guaranteed for life (Note: we will deal only with the guaranteed annuity for life here, but there are other varieties as well which we will be happy to discuss with you.) So the money in the Pension Box goes to the annuity company who provides you with the guarantee of an income for as long as you live. Many of you will immediately ask: “Can I trust them to pay me as they promise?” It is a good question and the answer is that Government provides a guarantee that ensures the annuity will continue to be paid even if the company concerned goes under.