There is so much focus on what we call savings accumulation, but what’s the point of triple locking the front door when you are leaving the back door open for burglars.
This is what a finance expert giving evidence to the Financial Services Consumer Panel said about people getting (or more rightly not getting) a fair deal within the annuities market. What they were trying to say was, we put blood, sweat and tears into our pension funds, saving for decades, only to be mis-led when it comes to converting that lump sum into an income. Typically through the purchase of an annuity, but does this mean you shouldn’t buy one?
What happens when you want to use your pension?
People pay into their pension for several decades. It is well protected from tax and is usually invested in the financial markets so that it grows over time.
When it comes to your retirement and actually using your pension, what you have is a lump sum that needs to last for the rest of your life. When you get to this point you can either ‘drawdown’ and withdraw money from your pension, or buy an annuity, which guarantees a fixed sum of money for the rest of your life.
With pension drawdown plans, these are typically suited to individuals with large pension pots as they can be high charges associated for the services, your pension fund will normally remain invested within the financial markets, meaning it could go up or go down as it is still exposed to market risks. With any luck, you may live far longer than you anticipated, but this means you might outlive your pension pot.
What makes an annuity attractive is that at the moment of buying it, you know exactly how much money you will get, and that it will last for the rest of your life. But how can you be sure you get a good deal?
What do you need to be aware of when buying an annuity?
When receiving services from the Financial Industry you may think that you’re being advised, but what you’re getting, is ‘guidance’. If you go onto a website for an annuities broker, call them, or get a call out of the blue, you will probably speak to a salesman or an ‘introducer’. An introducer is paid to introduce you to an annuities provider and encourage a sale.
These people will not advise whether an annuity is right for you, nor is it likely that you will receive advice on what the most appropriate type of annuity is for you. If you’re talking to a broker or salesman, you can miss out on extra income or a vital layer of protection, if the product isn’t the best one on the market for you.
What can you get from an Independent Financial Adviser?
Simply put, independent, unbiased and impartial advice. Money Saving Expert Martin Lewis said the following:
We need a form of collective national hypnosis to ensure that when people walk into their bank and see ‘adviser’, they read ‘salesperson’ instead.
Many people involved in the selling of financial products are considered ‘advisers’ but they are not independent or unbiased, nor do they have the same level of obligation to act in the best interests of the client.
An Independent Financial Adviser is able to look at the whole annuities market, assess your circumstances, and advise you on the appropriateness of a type of product, and whether an annuity is the right option for you.