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A guide to getting a better annuity rate

Joanna Faith
Written By:
Joanna Faith

Annuity rates have plunged to record lows but there are certain steps you can take to get the best possible deal.

Annuity rates have fallen along with interest rates. Coupled with increased flexibility around the way people take their pension, this has seen annuity purchases slump.

The best open market annuity rate for a 65-year-old now offers an annual income of just £5,181 on a £100k fund, according to Hargreaves Lansdown.

Yet many people are not shopping around. New statistics from the FCA show that 57% of people stick with the same provider. Lower rates should encourage retirees to seek out the best possible deal because once the rate has been secured it cannot be altered.

Here’s a list of things you can do to improve your annuity rate

1. Shop around

The first and arguably most important step is to shop around and obtain several quotes from providers before making a final decision.

“Annuity rate providers compete for their position in the market place and they change places in the ‘best buy’ table frequently depending on how much business they want to attract at one particular time,” says Angela Murfitt, a chartered financial planner at Fairstone.

Many people simply stick with their pension provider when buying an annuity but this can be a costly mistake.

“You don’t need to stay with the company you’ve saved with. More often than not, you can improve the income you receive by as much as 30% or even more [by switching],” says Andrew Tully, pensions technical director at Retirement Advantage.

And never accept the first quote you get. The terms of a quote are usually guaranteed for between two and four weeks so you have time to do some research.

2. Set up a personal call with a provider

Standard rates are based on age and product type only but most providers will offer to give you a ‘personal’ rate if you’re prepared to answer more detailed medical and lifestyle questions.

“If you are offered a telephone interview with the company, always accept it and be totally honest about yourself and your family history,” says Tully

3. Disclose as many facts as possible

“The key to accessing the best annuity rates available is to disclose all the facts in as much detail as possible,” says Murfitt.

“Remember underwriting annuities is different to life insurance. Underwriters are not looking at the risk of dying too soon, rather they are trying to establish the risk of living too long. This is all reflected in the rates they are prepared to offer.

“Something as simple as the postcode where you live can lead to an enhancement of the rate offered.”

You could also secure a greater enhancement if your height and weight are outside ‘normal’ ranges, if you take prescribed medication, and if you disclose that you smoke or drink more alcohol than most.

“This sounds counterintuitive but annuity companies will pay a better income if they think your lifestyle or health means you won’t live as long as your neighbour,” says Tully.

4. Get professional advice

Not only will a financial adviser be able to get you the best rate by making sure you disclose all your medical history and personal circumstances, they will be able to point you toward the right type of annuity.

Since the pension freedom rules were introduced in April 2015, effectively removing the need to buy an annuity for many people, there has been a wave of innovation in the annuities market giving retirees more choice. For example, standard annuities, money-back annuities, fixed-term annuities and hybrid products mixing annuities with drawdown.

“This is where a financial adviser will help you navigate the market and ensure you choose the option for your personal circumstances. You may feel confident enough to go it alone but an adviser will ensure you not only get the best deal but the right level of guarantees for you and your family,” says Tully.