Maximising retirement income
By Nigel Callaghan | 10 Jul, 2008
Retiring investors are rightly concerned about inflation. The question is how best to plan for rising prices whilst maximising the value of your pension savings.
Our latest research into the annuity market shows that Fixed Increase annuities - typically rising at 3% per annum - represent the best value annuity solution to the inflation problem.
An RPI-linked annuity should only prove to have been a good deal if inflation picks up well beyond the Bank of England’s current core projections, or an investor lives significantly beyond their projected life expectancy. An investor is therefore paying a large premium for the complete inflation protection an RPI annuity provides.
A Fixed Increasing annuity’s starting income is about 25% less than a Level Annuity would offer. However, if an investor lives to their expected age, the total income paid out from the increasing annuity will exceed the total income received from the level. Living to a ripe old age is a real possibility - there is over a 40% chance of a 65 year old man living to his 90th birthday.
This type of annuity is a sensible compromise between gaining much needed protection against inflation, whilst receiving a fair level of starting income.
Buying a level, non-increasing annuity almost guarantees a falling standard of living in retirement. If inflation runs at 3%, then after 25 years the purchasing power of a level income has fallen to less than half its original value.
Investors should always shop around to get the best available annuity deal - there can be a 30% difference between the best and worst annuity rates on offer. Please call our annuity team of experts on 0117 980 9940 to explore your options.
