Ignorance could halve your pension
If you don't know what an annuity is, find out quickly. Otherwise your pension could be a lot smaller than you expect.
Pensions is a boring subject. I’m a personal finance journalist and even I find pensions a bit dull. But I also know that they’re really important. Make the wrong decision when you retire and you could end up with a pension half the size of your maximum possible pension.
So I was very sad to read the results of a recent poll by Standard Life which shows that many Brits are completely clueless about annuities. 48% of adults don’t know what an annuity is, and that figure rises to 58% amongst the 35 to 44 age group.
If you don’t know what an annuity is, read this article which gives you the essential facts.
Annuities are really important because they convert millions of people’s pension pots into retirement incomes that will pay out until the person dies. So when the time comes to retire, it’s essential that you shop around and buy the best annuity for you. If you don’t understand properly what annuities are, you’re more likely to be ripped off.
The financial cost of ignorance can be massive. According to MGM Advantage, you might end up with an annual income that is half the size of what you could have got if you had played your cards correctly. Just to be clear, I’m not talking about mistakes that you might make when you’re 30 or 40. I’m saying that mistakes made purely on the day you retire can reduce your pension by as much as 50%. I think that’s pretty scary.
It’s not just a question of shopping around for the best quote. You also need to be completely honest and tell annuity providers about any health condition that you may have.
If you’re sick, you’ll actually get a bigger annuity because you’re more likely to die earlier. So this is very much a situation where honesty pays! Find out more in When you’re better off sick.
And if you want to see how much you could gain by shopping around, check out our annuity calculator.