Many people are disappointed by the size of their pension when they come to retire. Here are some great ways to boost your pension income.
Pensions have had a lot of poor press in recent years. Much of it has been deserved. I especially understand many pensioners’ frustration with the size of their annuities or pension incomes.
If you’ve worked hard all your life and built a pension pot worth £100,000, you’re going to be pretty fed up if you find your pension is only going to be worth £6,000 a year when you retire. Even worse, if you die after a year, the annuity provider will usually keep your pension pot and nothing will be passed on to your children.
So in this article, I’m going to look at ways to boost your annuity – by as much as 50%! In other words if you have a £100,000 pension pot, you could end up receiving £6,000 every year until you die instead of £4,000 a year.
If you've left your pension planning to the eleventh hour, find out how to catch up quick.
Before I go any further, I should say that this article won’t be relevant for everyone. If you’ve retired and already bought your annuity, I’m afraid there’s nothing you can do to change things now. And if you’re a member of a final salary pension scheme, then enjoy your good fortune! You won’t need to buy an annuity.
But if you and/or your employer are paying money into a pension scheme which will give you a pension pot when you retire – otherwise known as a defined contribution pension scheme – then please read on....
Here are four ways to boost your pension income:
When you come to buy your annuity, you must shop around. Too many people just take the annuity that is offered by the pension company they’ve saved with. But other annuity providers might be willing to pay a higher rate. You might gain as much as 20%! Find out more in Make this mistake and lose 20% of your pension!
Tell the truth about your medical record
If you’re asked to fill in a form about your medical history, I suspect many people would want to play down any medical issues they might have. I think that’s partly due to a traditional British desire not to moan, but also because we know that the more ill we are, the more we’ll have to pay for life insurance.
Related blog post
But the reverse applies when we’re talking about pensions. If your health is poor you’re likely to die sooner rather than later and, as a result, an annuity company can pay you a higher annual income. The company knows you’re unlikely to live till you’re 100.
So if you smoke, say so on the application form. If you’re suffering from a serious illness such as diabetes, tell them. Whatever your medical ailment might be, tell them, it might make a difference.
That said, I would urge you to be truthful at all times. Annuity providers do check up on medical records and they’re also beginning to conduct other tests such as urine and breath tests too on some occasions. Find out more in When you’re better off sick.
If you live in a posh area and you want to boost your annuity, move to somewhere less posh!
I plugged some numbers into this annuity calculator using two different postcodes. Basically someone living in the Barlanark area of Glasgow can get 5% more than someone living in the City of London. Well worth knowing! Read more in Will your postcode affect your pension?
Smaller pension pot
This might surprise you, but people with smaller pension pots are better off than those with large pots in one small respect.
Recent question on this topic
- daveyg asks:
Basically people with a small pot get a slightly larger annuity in percentage terms. I plugged in some figures using the annuity calculator and I found that a 65 year old non-smoker with a £100,000 pot would get a level annuity of £559 a month*. An identical man with a £500,000 pot can get an annuity of £2782 a month. In percentage terms, the man with the smaller pot gets 5.59% while the man with the larger pot gets 5.56%.
The man with the smaller pot gets a higher rate because the annuity companies believe that a richer, more prudent man is likely to live a slightly longer life than someone with less money in their pension pot.
OK, I’m not really suggesting that you should have a smaller pot just so you can get a slightly higher annuity rate. But it’s an interesting thing to know....
*This is a level annuity for a 65 year-old man with no guarantee. Level means that it never rises.
Be the first to comment
Do you want to comment on this article? You need to be signed in for this feature