Beat the annuity traps that could rob you of thousands DON’T leave out any health details when applying for an annuity as this can boost your rate. That even includes lifestyle choices such as how much you drink and smoke

BY THE time you retire, really you should have mapped out how you’ll get an income that will last as long as you need. Ideally, that means sitting down with a financial adviser and plotting a course for your investments

before you stop work.

But there is nothing stopping those who have already started dipping in to their pots from coming up with a masterplan now.

Remember what you should be aiming for: a secure, regular income that won’t leave you exposed if stock markets crash.

Unless you have a final salary plan to provide this, an annuity is the simplest solution. But it isn’t the only option. This pullout details other ways to a steady income — there aren’t many.

If you like the annuity route, you will need to go about buying one of these deals extremely carefully. There are all sorts of pitfalls that could leave you with a fraction of the income you could have been paid.

Follow our guide below and you won’t go far wrong . . .

WHY YOU MUST SHOP AROUND

ANNUITIES have some clear drawbacks. Buying one is a once-only decision; you can’t change your mind six months later and ask for your money back.

And when you die, there won’t be a lump of money to leave to your spouse or children — though annuities can provide a guaranteed income for a period, say five or ten years.

But the most obvious problem is that, at the moment, rates are pitifully low and are likely to remain so for a while. This is because wider interest rates and the gilt yields on which annuity rates are based are also low.

In the past ten years, average rates have slumped by a third, according to data company Moneyfacts. Figures from specialist firm Retirement IQ show that the best available to a 65-year-old looking to invest a £50,000 pension pot today would be £2,590 a year, fixed for life. You would have to live to be almost 85 just to get your money back.

And because the rates on offer to both sexes are the same, they can be poorer value for men, who tend not to live as long as women. The average life expectancy for a 65-year-old man is 83.6 years, while for a woman it is just under 86.

After years of mis-selling, all pension providers are now obliged to tell customers they can shop around for a better deal when they get to retirement. But what they might not tell you is that if you fail to do so, you could be missing out on 25 pc extra every year for the rest of your life.

The worst annuity deals tend to come from older pension providers which have shut to new customers.

Between April 2015 and June 2017, people switched providers in only half of the 180,900 cases where annuities were purchased.

A financial adviser will help you compare the rates you could get, or you could use an online tool. For an overview of the best rates, see

GET A BOOST FOR MINOR AILMENTS

THERE are many types of annuity available. One of the most important is called an ‘enhanced’ or ‘impaired life’ annuity.

These deals are reserved for savers who have lower life expectancies due to poor health or lifestyle choices, such as smoking.

If you take any sort of medication or have suffered even slightly raised blood pressure or cholesterol, you could qualify.

According to industry figures from Just, an enhanced annuity provider, around six in ten savers should qualify for an enhanced annuity when they apply.

Among the most common conditions that people declare are high blood pressure, obesity, diabetes and high cholesterol. An enhanced annuity to reflect a high blood pressure condition would pay £2,830 a year — that’s almost 10 pc higher than the best standard rate.

Someone with high blood pressure, high cholesterol and who smokes 20 cigarettes a day and drinks 14 units of alcohol a week can get a much higher payment of £3,343 a year — that’s almost 30 pc extra.

At 65, a smoker could get £2,853 a year, so they could break even if they lived to 82-and-a-half years old.

When buying an annuity you are essentially taking a gamble that you will outlive your contemporaries. So the healthier you are and the better your genes, the better the odds of you getting value from an annuity.

The opposite is true if you have severe medical conditions. In these instances, you are less likely to benefit from an annuity.

If your parents and their siblings are living life to the full in their roaring Nineties then an annuity could be the right option for you.

LOOK AFTER YOUR SPOUSE

THE rates we’ve mentioned above apply if you want an annuity covering just one person (and will pay out for a minimum of five years even if you die earlier).

However, it’s also possible to purchase a joint annuity that will continue paying an income to your partner or another dependant until they die, should they outlive you.

You can opt for 100 pc of the income to be paid, or select a lower proportion, such as half or two-thirds. The more you choose, the lower the rate you get on the payouts when they start.

This is a good option for those with a spouse who has little or no pension savings in their own name.

If you want one that will pay two-thirds of income to a spouse five years younger than you, then the best is £2,215 a year for a 65-year-old.

u will need to specify this to the viser or company you’re dealing th. Say you want a ‘joint life’ deal. f you wanted one that increased in e with the retail prices index and so would protect your spending power, you could hope for an initial income of just £1,209 a year at age 65. This would also pay an income of twothirds to a spouse five years younger than you if you died before them. Say you want an ‘indexlinked’ deal to get one that goes up with inflation ( see the jargon box below). Some annuities offer guarantees that your income on’t fall below a certain figure ould negative inflation occur. Other specialist annuities are offered for a fixed period rather than for life. You should speak to a financial adviser if you’re interested in one of these.

WAIT TO GRAB A BETTER DEAL

PENSION experts say annuities can become better value as you grow older, as you have already outlived some of your fellow annuity-buyers.

If you enter the pool when you are older, then those who have already died have left some cash washing around. So, it is argued, if you hold off until your mid-80s then you might get a better deal.

However, even at these ages it is difficult to make the numbers add up based on average life expectancy.

An 85-year-old could buy a £5,653 income with their £50,000, so they would need to live almost nine years to break even. The Office for National Statistics puts average life expectancy for an 85-year-old man at 5.8 years and for a woman at 6.8 years, so once again you would be betting on beating the average.

However, you would have to beat it by only a year or two to be quids in.

Billy Burrows, of Retirement IQ, has spent his career hunting out the best annuity rates for clients. He says that while there is nothing wrong with the concept of annuities, the issue for the moment is that rates are very low.

‘ One problem is a lack of competition, with only six major providers still in the market,’ he says. ‘At such low rates, the question is: Should you buy an annuity? If you want a guaranteed income without fear, then it still has a place.

‘People who have saved all their lives into a pension may want to ask another more general question: is there trouble ahead?

‘If you think that there is and that this could have an impact on the stock market, then locking in your income via an annuity makes sense.’

Standard Life is among the firms that have stopped offering annuities. Jamie Jenkins, head of pensions strategy at Standard Life, advises those who want one: ‘If you feel you could have a shorter life expectancy, then an annuity rate can be adjusted upwards.

‘Don’t be afraid to disclose health details. Annuity providers need to know everything that is wrong with you to give the best rate.’

HIDDEN GOODIES CAN HIKE PAYOUTS

SOME older pensions may also automatically offer a higher income.

In the Eighties and Nineties, many companies used to offer guaranteed annuity rates with their pensions.

Some might pay 10 pc or even more. So on a £50,000 pension fund you could take a lifetime income of £5,000 a year.

Guarantees offering this sort of rate can be written into the small print. While this may sound like you’ve hit the jackpot, there is usually a drawback.

The pension offered will be on a single life basis — so when you die, the annuity income will die with you and there will be nothing for your spouse.

Whether you take the offer will depend on your individual circumstances. For instance, you and your spouse may well have other pensions or investments to fall back on.

But these restrictions may explain why 58 pc of guaranteed annuity rates are not taken up, according to the latest FCA figures.

In this area, as in so much with pensions, independent financial advice can be worth its weight in gold. Not only will an independent financial adviser be able to understand the details of your pension and any goodies that may be hidden in it, they will also be able to help you find the deal most suitable to your circumstances.