Should I buy an annuity before the interest rates fall?

Hi,

I have been thinking for some time that I should buy an annuity before the interest rates fall, so Holly's message on 20th September about this was timely.

I am 63 and beginning to work fewer days, with a view to retiring before my state pension age of 67. It therefore might be sensible to buy an annuity as the extra income would not push me into the higher rate tax band.

As well as a work defined-benefit pension, I have a money purchase pension fund with Virgin Money. I got out the file to find out how I go about buying an annuity, only to find that Virgin Pension only permits you either to withdraw all the money in one go, or to do a free transfer to another company. So, if I withdrew all the money, 75% would be taxable.

This was a shock, so my question, that perhaps you could include in a future blog, or add link on your website, is can you easily transfer a pension pot to another pension provider and then immediately, or very shortly afterwards, buy an annuity with the new company?

Thanks,

Pauline

Hi,

Your situation highlights the need for tailored financial advice, as there are several factors to consider beyond simply transferring your pension and purchasing an annuity.

You’re correct that annuity rates are influenced by interest rates, and with recent shifts, it can seem urgent to act quickly. However, selecting an annuity is a complex, often irreversible decision, and so should not be rushed.

Here’s why personalised advice is crucial for making the most of this opportunity:

1. Tax Efficiency: Withdrawing all of your pension pot in one go would indeed result in 75% of it being taxable, likely at a rate higher than necessary. A professional adviser could explore tax-efficient strategies for transferring or drawing down funds without pushing you into a higher tax bracket.

2. Transfer Process: Transferring to a new provider can vary in time and complexity. An adviser would help facilitate a seamless transfer and select a provider that suits your timeline, financial goals, and desired flexibility. They could also help you assess which annuity options align with your retirement plan and existing income sources, allowing you to balance guaranteed income with flexibility.

3. Tailored Income Strategy: Given your upcoming retirement, tailored advice could also help you coordinate your annuity with your other income streams, such as your state pension and defined-benefit scheme. This can ensure that you’re maximising your retirement income without sacrificing future flexibility.

To discuss your options in greater detail and avoid unnecessary tax burdens or restrictive choices, consider speaking with a qualified financial planner. They’ll help you with this decision to ensure you receive the right income for the lifestyle you want!