... but at least annuities are now better value

ONE consolation for workers who have seen their pension values fall just before retirement is that the price of buying a guaranteed income has fallen.

For several years, annuities languished so low that most buyers were unlikely to get their initial investment back. But, annuity rates have soared over the past year.

A 66-year-old with a £100,000 pension pot can now buy an annuity paying an income of £7,000 a year – £174 more each year than compared to the same time last year, according to provider Legal & General. The group says that demand for annuities has soared by almost three quarters, with the number of quote enquiries rising 71 per cent since last year.

The costly lifestyling investment strategy described above was designed for those who use their pension pot to buy an annuity. These contracts exchange a cash lump sum for a guaranteed yearly income until death. They invest this way because any sharp falls in bond prices should normally be offset by a rise in annuity rates. PensionBee’s Rebecca O’Connor says: ‘You may feel you can get some of the money back through annuities at least. Remember, you don’t have to get an annuity to cover all of your retirement – it can be fixed term – and you don’t have to use your whole pot on an annuity.’

You can use a portion of your pension to purchase a guaranteed income to top up your state pension and cover the cost of your everyday essentials. The remainder can be left in a drawdown pot, which you can dip into as and when you need. If you find yourself in David Norton’s position and your pension has been caught in the crossfire of the bond market turmoil, O’Connor recommends delaying retirement where possible. ‘It’s a very good idea to put retirement off a little because the longer you are invested, the more chance you have for recovery. If you draw from your pension then you lock in that loss and it becomes real, but until you touch it, it is just paper loss.’

You can book an appointment for free impartial guidance from the Government’s pension service Pension Wise at moneyhelper.org.uk.