‘How to increase your retirement income’, a question we would all undoubtedly like the answer to but according to recent figures from the Association of British Insurers (ABI), the majority of retirees are unwilling to ask.
Doing nothing costs money
Apparently when it comes to retirement planning, a whopping 60% of us are happy to go along with the option offered by their pension provider, missing out on valuable pension income. Whether it is down to lack of awareness of options available, trust that your existing pension provider will offer the best deal or just that it’s easier to ‘go with the flow’, doing nothing could reduce the amount of retirement income you receive, in some cases by thousands of pounds.
Retirement on the horizon
One of the options available to you when you retire is to invest your hard earned cash into an annuity, an insurance plan that guarantees a regular income for life.
In the lead up to your retirement date, your pension provider will write to you informing you of the size of your pension pot and how much income you would receive from them.
Pension annuity providers base their rates on different factors so offers do vary, hence the importance of shopping around. Depending on the pension scheme you have, you may also be given the ‘open market option’ which is your right to shop around for a better deal.
You may find this hard to believe but your current pension provider may not offer the best deal so by exercising your right to use the open market option, you can compare annuity rates across the whole of the market and substantially increase your retirement income.
Boost your income
As mentioned, annuity rates are based on a number of different factors, one of which is life expectancy; quite simply a shorter life expectancy could lead to an increased level of pension income. If you have a medical or lifestyle condition such as high blood pressure, a heart condition, diabetes or you smoke, you could qualify for an enhanced annuity which offers better rates and more money. The ABI states that 48% of people with health problems could increase their income so it’s certainly worth looking into.
Show me the money
You will be given the option to take up to 25% of your pension or savings pot as a tax free lump sum before converting the rest into an annuity, which will in turn give you a regular income. The amount you take will affect your ongoing income so think about your future requirements as well as your more immediate need.
An annuity is for life, not just for Christmas!
You cannot change an annuity so once you have made your decision, you’re stuck with it. That is why it is so important to make sure you shop around and get the best annuity rate.
Don’t forget the bells and whistles
Annuities usually come with a number of options which include inflation proofing and nominating a spouse or dependant to continue receiving a percentage of your pension income if you were to die. These are important things to consider as you don’t want to leave those you care about unprotected however it will impact the amount of income you receive.
To give you an understanding of how much you could increase your retirement income by, try the annuity calculator which also has the option to vary the amount of money you can take as a cash free sum so you can see the impact it will have on your future income.