Annuities

[maxsan]

I have 3 pensions with UK pension companies and wish to turn them into an annuity. The iniquitous situation that prevails in the UK of legalised theft by the pensiopn companies, means that when I die the fund dies with me. I wondered if anyone in France has taken out a French annuity or its equivalent and could shed some light on what happens here.

[AnOther]

I'm absolutely not defending the insurance companies because, like you, I think they are unprincipled legalised robbers, to be fair though you have to remember that an annuity is a gamble.

If you buy your annuity @ 65 and die the next day they win but if you live to be 100 they lose so the real iniquity is not so much in the principle as in the practice and way the odds and rates are calculated and is the reason you should use the Open Market Option to maybe take your fund elsewhere for a better deal.

Sadly the statistics show that despite being now obliged by law to inform their clients of the Open Market Option the vast majority still fail to exercise it and can therefore potentially lose out on thousands of pounds of future income.

The same goes for those with impaired health or low life expectancy where an annuity can sometimes be greatly enhanced for the sake of asking the question.

One of the reasons the rates are so pathetically low is that most insurance companies are still having to pay out on up to 15% Guaranteed annuities written in the late 80's which are currently completely unaffordable but still have to be paid. The markets aren't producing those sort of results so of course there's only one other place that money can come from !

This is a problem which isn't going away anytime soon either because, like thousands of others, although not yet 65 or retired, I'm sitting on a pension from previous employment in the 80's which is guranteed to rise annually @ 7% above the retail price index.

Be nice to think that my savings would actually be earning that rate when I do retire but I strongly doubt it and suspect there would probably be a massive depression on if they were.

[Benjamin]

There is an alternative to purchasing an annuity; it is called Income Drawdown.

Without getting too technical this enables you to combine one or more existing pension funds into what is normally referred to as a Self Invested Pension Plan (SIPP).

You can then draw whatever is the allowable lump sum and the rest of your pot is then invested in market fumds with a pension provider of your choice.

You can then draw an income of between (and these are guesses from memory) 2% and 6% of your invested fund annually. These percentages are controlled by the UK government. If you reach the age of 75 you must then purchase a conventional annuity but until that time if you were to die then the fund passes to your heirs.

I believe that there is a minimum lump sum of about £100,000 under which a pension provider will not take you on. If you have been contributing to a private pension fund for a number of years, then this figure is not so high as it may initially appear.

The beauty of this approach is that you delay purchasing an annuity and your pot becomes an asset to your estate if you die before reaching 75 years.

Take appropriate professional advice.