Act now or face pensions heartbreak, urges Green
An EU directive that comes into force in December will immediately hit annuity rates.
Falling annuity rates and legislative changes mean that those thinking of drawing their pension in the near future should do so now, according to Nigel Green (pictured)
, chief executive of the deVere Group.
Green says men in particular are in danger of losing out on what they expect to receive, as a European Union directive that comes into force this December will make it illegal to use gender as a factor when calculating payouts.
As men live shorter lives than women they have traditionally drawn higher annuities – because they are expected to draw them for a shorter time period – but this will no longer be legal.
However, Green says that it is not only men who stand to lose out if they delay.
"Annuity rates have been cut 14 times since July and that trend looks set to continue for the next year, and probably into 2014, so investors approaching retirement are advised to act as soon as possible," said Green.
"Deferring an annuity purchase even for a few years could mean that you struggle to make ends meet during your retirement."
Mark Stone (pictured left)
, head of pensions at Whitechurch Securities, agrees that men should consider purchasing an annuity before the legislation comes into force, and women should think about delaying until afterwards.
"With regard to rates, I think there will be a meeting in the middle, so that rates for men go down slightly and women’s rates go up," he said.
Stone says that those who are thinking of drawing their annuities should do some research into their providers.
"The first thing to check is whether the company you will be drawing your annuity from has already taken into account this ruling. If not, men should consider taking the annuity before the deadline."
Regardless of the EU ruling, Stone explains that the outlook for annuities is still negative, meaning that purchasing sooner is likely to tie in a higher rate.
"Annuities are based on three things: gilt rates, interest rates and life expectancy, and two of those three are as low as they have ever been and look like staying low."
"Plus, the Basel II legislation will come into force next year, requiring companies to set aside more reserves against their annuities and therefore pressuring them to remain low."
Stone says that the number of factors affecting annuity rates – Gilt rates, interest rates and legislation among them – means that it is important savers keep informed and think ahead.
"We always say you should be looking at your pension fund sooner rather than later. Do not leave it to the last minute. Start your planning early."
"It’s critical to remember to shop around to get the best rates. Your pension provider – the company you have been saving with – is not always the best for drawing your annuity from."
"You should also think about having your annuity underwritten. A lot of companies now will underwrite your pension based on a number of factors like lifestyle, postcode and so on."
He explains that this means some providers will pay out more if holders have a history of illness, smoke or live in an area where life expectancy is lower.
"But you need to shop around the enhanced annuity providers to find these offers," he said.
AWD Chase de Vere’s Patrick Connolly believes the incoming EU directive should be a strong consideration for men who are considering purchasing an annuity in the next 12 months, but the low gilt and interest rates make it more sensible to wait a few years for those who can.
"You do not have to buy an annuity now if you are willing to accept the risk of having your money invested for a few more years," he said.