Ignorance could halve your pension

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 13 December 2011  |  Comments 2 comments

If you don't know what an annuity is, find out quickly. Otherwise your pension could be a lot smaller than you expect.

Ignorance could halve your pension

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.

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Comments (2)

  • TonyRome
    Love rating 0
    TonyRome said

    The article about pensions is quite interesting. I had a heart attack in 2008 and retired in 2010. Just prior to retirement, I contacted all three of my pension providers (very well known ones) and asked about an enhanced annuity because of my heart disease. Every single provider replied by saying that they do not offer enhanced annuities.

    I accepted that but having read the article I now doubt that.

    Report on 03 February 2012  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 80
    Ed Bowsher said

    Hello Tony,

    I'm sorry that you weren't able to get an enhanced annuity. It's possible that your three pension providers were telling the truth when they said they didn't offer an enhanced annuity. in hindsight, you shouldn't have bought your annuity from your existing pension providers. But that's not much use to you now.

    I'm sorry I can't say anything more positive to you.



    Report on 04 February 2012  |  Love thisLove  0 loves

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