Guaranteed Annuity Rates: What are they?

Annuities are a way to receive a fixed monthly income once you retire. They are one of the many options you can take when you retire and are often used to provide fixed incomes without the worry of market volatility.

Read on to learn about guaranteed annuity rates along with the benefits and the downsides

Read on to learn about guaranteed annuity rates along with the benefits and the downsides in the UK.

What is a guaranteed annuity rate?

A guaranteed annuity rate is the rate you get when you buy a guaranteed annuity. This rate impacts how much income you will receive from your annuity when you retire, and is dependent on a number of factors including age.

The rate of an annuity is what determines how much you get annually. For example, a 10% annuity rate on a pension pot of £100,000 means you would get an annual income of £10,000 or a monthly income of £833.

When did guaranteed annuity rates come into play?

Guaranteed annuity rates were much more common in the 1980s and 1990s when pensions weren’t compulsory in the workplace, and so companies used this as a way to attract people. Nowadays, it’s much less common to see a guaranteed annuity rate as part of a pension offering. 

What are the benefits of a guaranteed annuity rate?

A guaranteed annuity rate can be beneficial if it provides an above-market rate for your annuity. For example, if the rate offered to you for a new annuity is 5%, but your pension has a guaranteed annuity rate of 12%, you’ll be able to take advantage of the higher rate.

Most pensions that offer this were taken out before 1988, and may have been called retirement annuity contracts or Section 226 policies. If you have a pension from this era, speaking to a financial adviser can help you to learn the best option you have, if you wish to take an annuity out.

What are the downsides to a guaranteed annuity rate?

A guaranteed annuity rate can sometimes provide a lower rate than is currently available on the open market. As annuity rates are affected by market performance at the point you buy them, you may be able to get a better deal depending on market circumstances. Annuity rates are tied to interest rates, so if interest rates increase, then the guaranteed rate you have may be less.

As well, if you have medical conditions that make you eligible for an enhanced annuity, then you may be better off choosing this. Enhanced annuities can offer better rates for those with certain illnesses, those who are smokers or are overweight. If you weren’t aware of your need for an enhanced annuity when you took out the guaranteed annuity pension, then you may want to speak to a retirement advice specialist. They can help you to understand which options you have available, and which would be best for you to consider, based on the factors currently known.

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Do you have a guaranteed annuity rate?

Knowing whether you have a guaranteed annuity rate from one of your pension providers may not be as simple as just looking. It can often be hidden in the terms and conditions and not necessarily named “guaranteed annuity rate” but instead under a different term such as the Section 226 policy.

Using a retirement advice specialist may be able to uncover any guaranteed annuity rates associated with your pension and provide you with the best options.

Should you transfer into a guaranteed annuity rate pension?

Deciding whether to transfer into a guaranteed annuity rate pension all depends on the best financial option for you. If you have a guaranteed annuity rate with one pension provider, but you have found that you’re now eligible for an enhanced annuity, then it may not be worth it.

Similarly, it may be that there’s a better rate available on the open market, or you’ve got a guaranteed annuity rate you didn’t know about with another provider.

Our retirement advice specialist service can help

If you need to identify where your pensions are, and whether you may have a guaranteed annuity rate, our retirement advice service can help. Learn more today and see how we can help you.