Seven retirement questions you need to ask
Nearly three-quarters of people feel confident enough to try a DIY approach to retirement decision-making, according to research by Annuity Direct. But it doesn't mean they are necessarily making the right call.
The study found that about 50% of those who made their own decisions about retirement income made at least one serious error without realising it.
It was also found that 20% of the population doesn't have the necessary skills to read the rules and do the maths to determine the best product for them.
Alan Higham, chairman of Annuity Direct, has come up with the following seven questions you should ask your broker or adviser to make sure you get the best income in retirement:
Will you look at the whole range of options available for taking retirement income?
Only go with the suggested option if you're sure any alternatives excluded are definitely not for you. If you are at all unsure, walk away - you can always go back later.
When is the best time to take out an annuity?
Some will want to sell you an annuity in a rush so they get the one-off commission before someone else does. So always take the advice of the adviser concerned that you buy an annuity at the right time for you – not them. To this end, they tend to ask you more questions about what you want out of retirement to make sure they do the best by you.
When I buy an annuity, will you look at all the rates available on the market or do you miss some firms out?
Why use a broker or adviser who doesn't look at every option? You could stand to lose the chance of a better rate. Insist on dealing with firms who look at the whole of the market. If they don't say clearly that they are whole of market, then the chances are they're not.
Will you collect my full medical history and lifestyle information and pass it safely to every insurer so they can provide their best 'guaranteed' quote?
You don't want to buy without seeing the very best rates; nor do you want firms to tempt you with 'estimated' rates that assume things about you (which aren't likely to be true) and then disappoint you with the real, much lower, rate.
Will you check the small print of my current pensions to make sure I'm not missing out on any extra benefits or be caught by a penalty I wasn't aware of?
One in seven customers experiences something in the small print that materially affects their income. It could be a guaranteed annuity rate that beats the open market rate but you can only use it in certain situations. Or you could be entitled to more tax-free cash than the standard 25%. There could be penalties that apply when you retire three months before age 65 but they don't apply at age 65. Make sure you understand what the small print is about.
If you are not giving me formal advice, will you still check what I choose and tell me if you think I might have made a mistake?
Research suggests that 50% of consumers make a poor decision at retirement in some aspect. Not all of them are obvious but many are to an expert. A salesman wants your commission; an expert wants you to make the right decision. Use this question to explore how the firm will make sure you have all the facts, even the answers to questions you don't ask but should have asked.
How much will it cost me?
You will always have to pay to buy an annuity. But not everyone is dealt with honestly and told about what the charge is and the options about how to pay such as from the pension fund or by writing a cheque.
Don't deal with people who tell you it doesn't cost you anything or that the insurer pays for it all. That isn't true and if they can't be honest about something so simple, the worry is they probably won't be helpful in other more complex areas.
Pick the firm that sounds like good value for your money, not necessarily the cheapest.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.