MONEY COMMENT
Annuities Are Forever! So Shop Around!

By Jane Mack (TMFJane)
September 11, 2003

I was reading a report the other day in which the Association of British Insurers said that people are still not shopping around for the best annuity rates when they come to take their pension. This provides you with an income for life and it's a decision that, once taken, can't be changed.

While much of the Motley Fool readership is too young to be contemplating annuities, parents and grandparents may well be nearing the time to buy one. For the last year annuity providers have been required to point out to customers that they can buy their annuity elsewhere if they wish. And yet nearly 70% of people who took out an annuity in the last few months simply bought it off the company their pension fund is with.

Look at these latest rates from the Annuity Bureau for a 65-year old single man with £100,000 to spend on buying a level annuity for life.

Prudential              £7,312
Clerical Medical        £7,268
Allied Dunbar           £7,178
AXA Sun Life            £6,635

That's a difference of £56 a month and that's rather a lot of money to lose over 15 or 20 years. The difference is even more stark if the same man wants protection from inflation and so buys an escalating annuity:

Clerical Medical        £5,314
Canada Life             £5,287
Legal & General         £5,037
Scottish Widows         £3,917

Who on earth would dream of throwing away £116 a month?

The fact is, once you've bought your annuity you're stuck with it for the rest of your life. It's a big decision to take so if you know anyone who's about to take it, make sure they know that it pays to shop around.

Find out more about Annuities.