Should I delay buying an annuity?

When you retire, one of the options available to you is to buy an annuity, which means trading your pension pot for an insurance policy that pays you an income for life. Some people delay buying an annuity in the hope that they will get a better annuity rate and more money for their retirement.

However, new pension freedoms mean that you can now consider alternatives to buying an annuity for the first time. Depending on your circumstances, this could be the most productive use of your pension pot.

Annuities remain the most popular form of retirement income today, and we expect they will remain so for the foreseeable future. For more information on how annuities work and the different types of annuity, read our guide to annuities here.

Rise of the DIY retirement

Because annuity rates have stagnated in recent years, and because they aren't always compatible with Inheritance Tax planning, there were calls for change. This change came in the form of 'pension freedom' legislation enacted on 6 April 2015. Once you reach the age of 55, you can now decide for yourself how you access the money in your pension pot, and take an income from it.

An annuity can still provide a reliable income to you for the rest of your life or until the end of the term of the annuity. But for some, the 'DIY pension,' handled carefully, is making their golden years a more comfortable prospect than they imagined possible.

Annuity alternatives

If you are now having second thoughts about whether or not to buy an annuity, try reading our guide to the new world of pension freedom, alternatives to an annuity. If any of these options appeal to you, then you could consider delaying your annuity purchase, if only until you have had the chance to talk to a financial adviser.

Why not just wait for better annuity rates?

The annuity market is difficult to predict. Delaying your annuity purchase could give you access to better rates later on, but annuity rates could also fall further. You may have to settle for less if you wait, so there are risks whether you choose to wait or not.

Following 'pension freedom' it is still unclear which direction annuities rates will take. Fewer people buying annuities could mean that rates go down, if providers find their margins squeezed. On the other hand, providers could put rates up in order to make their products more attractive to people who now have more choice.

The best annuity rate for your circumstances

If you suffer from poor health or make certain lifestyle choices, for example if you have a serious illness or are a heavy smoker, you may be able to get an impaired or enhanced annuity, which could significantly improve the level of income that you receive.

Remember that you don't have to buy the annuity offered to you by your pension provider; shopping around could help you to find a better rate.

Annuities advice

If you are considering delaying your annuity purchase, you may want to speak to a financial adviser to find out all of your options and how it could impact or improve on your retirement income.

You could also try using a financial planning tool such as Moneyhub to model the possible effects of delaying your annuity purchase on the total income you might receive in retirement.

Last updated: 27 May 2015