understand how providers calculate your annuity rateso you know if you’re getting a fair deal.
Annuity rates are always presented as a percentage. This can seem confusing when you just want to know how much to expect each year.
Basically, if a provider offers you a yearly annuity rate of 5% you’d get £5 for each £100 invested. Someone with a pension pot of £100,000 would get £5,000 per year.
Let’s apply this to a more ‘realistic’ annuity rate and pension fund. A 4.3% annuity rate on a £72,600 pension fund would generate around £3,121 per year, as 4.3% of 72600 is 3121. Got it?
Your annuity rate is affected by a number of factors:
- Your age, health and lifestyle
- Where you live
- Your marital status
- Gilt yields
- Annuity provider’s competition
Your annuity rate won’t change once it’s been agreed by and purchased from your provider.
Your age, health and lifestyle
Rates are based on how long a provider expects to pay you. The younger you are when you buy your annuity the lower your income is likely to be.
You could even get a higher income if you have health problems that might affect your life expectancy. This is called an enhanced or impaired health annuity.
Where you live
Even your postcode could affect how much income you receive. Providers adjust rates according to life expectancy in certain postcodes.
A joint life annuity pays an income to a couple until both partners have died. This benefit usually comes with a reduced rate.
These are ‘safe bet’ investments used by insurance companies. They invest your pension fund and generate your income from the returns. Their increased popularity means prices have risen and potential returns have shrunk.
If the investments make less money the annuity rates offered to retirees also decline. Insurers consider investment growth predictions and quote rates accordingly. These rates can vary daily, impacting available annuity rates day to day.
Annuity provider’s competition
To get you to choose them over the competition, providers will try to offer you the best rate they possibly can. Some providers might even advertise annuity rates. This is pointless because as you now know, there are so many personal factors that impact your quote.
Your annuity rate will be personal to you. Get a live annuity quote with us and see exactly how much your retirement income will be. We make buying your annuity a stress-free process.