Sponsored by
Steve Hunt: Life expectancy impacts on annuity
So how long are you going to live? You may be surprised.
So how long are you going to live? You may be surprised.How long you are going to live is critical when buying an annuity (the insurance policy you buy when you retire). You may receive a much higher income (retirement salary if you like) by shopping around for the best annuity rate, as evidence suggests that most people in good health grossly under-estimate just how long they have left to live.
Have a look at our website www.rockinghamretirement.co.uk /longevity and see for yourself.
I recently completed all three calculators on our website assuming I was a healthy 50-year-old woman and all three results estimated I would live to be 95 years old. That means for most women retiring at age 50, they will spend almost half their entire life in retirement. Fact – life expectancy in the UK is currently increasing at a rate of five minutes every day.
What this all means is that the decisions you make shortly before, or at, retirement are likely to effect a quarter of your life and possibly half your life.
Your pension fund, company or private, may be the largest amount of money you will ever have after your house (and possibly including your house nowadays). Making decisions at retirement are the most important financial decisions you are likely to ever make. It is critical that you make an informed decision – so it will pay you dividends to shop around when you retire.
Unfortunately, there is a prevailing misconception that it is not worth bothering with for small pension funds. But this is very wrong in my view. Even if you only increase your income by 5 a year, who would you rather had that 5 a year for the rest of your life, you, your children, your grandchildren or your insurance company?
Make a list of everyone you would like to give 5 to for the rest of your life. How high does your insurance company rank on that list? Another misconception is that if you are in a company pension scheme you should not shop around at retirement. Wrong again.
At a recent corporate function hosted by one of the big 10 annuity providers in the UK, the director of annuities was retiring after 35 years' service with one of the best final salary pensions in the UK today – on a par with civil service, police or local government final salary pension schemes. He asked the collection of experts around the table what he should do. Without exception all said to take the final salary benefit; except one, me.
Let's look at what is payable from the final salary scheme and what could be provided through what is known as income drawdown or unsecured pension. By taking his final salary benefits he will receive 50,000 per year, increased by inflation (assume four per cent ). Mr X surviving 10 years (he has a health condition) will have received in total 600,305.36 in retirement income payments from his final salary scheme.
Alternatively, Mr X can go into an income drawdown scheme: his transfer value was 800,000. The maximum income he can draw is 57,600 p.a. Even based on a five per cent return on fund through Rockingham's new product, RITA, he can draw over the next 10 years an income of 57,600 p.a. totalling 570,000. And in 10 years' time, his fund would still be worth over 572,000. This can be paid to his two daughters at 371,800 net completely free of any further taxes (IHT).
Even if you are in the best final salary pension in the UK, you should still consider all your options at retirement.
Email to a friend
Print this page
Looking for...
Featured advertisers
Jobs
Search for a job
Motors
Search for a car
Property
Search for a house
Weather for Peterborough
Wednesday 23 May 2012
Today
Cloudy
Temperature: 11 C to 22 C
Wind Speed: 10 mph
Wind direction: North
Tomorrow
Cloudy
Temperature: 11 C to 21 C
Wind Speed: 14 mph
Wind direction: North east
Your view
Please sign in to be able to comment on this story.