Updated: April 17, 2024
Annuity Cost
A complete overview of the costs associated with annuities plus how to save money when taking one out
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How much does an annuity cost in the UK? Not as much as you might think.
According to the FCA, 8 out of 10 people overpay when buying an annuity. In this article, you’ll find out about annuity fees and charges, and how to find the best prices on annuities.
Here’s what you’ll learn in this article:
The following topics are covered below...
How much does an annuity cost?
The cost of a pension annuity really depends on the type of annuity and what features you want to include.
Annuity rates are based on Gilt Yields and 15 year Gilts provide a key indicator of the likely future movement for investors to base their decision on whether to invest or not.
For a rough idea of what your money might be able to get now, you can use the Pension Wise’s calculator. But remember, no online calculator can provide an accurate figure that takes into account your specific circumstances.
If you want a better idea about the cost of an annuity, make an enquiry today. One of the experts we work with can find the best value annuity for your exact needs.
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How are prices calculated?
Annuity prices in the UK are partially determined by your personal circumstances and the kind of features you want from the annuity, including:
Term length
Namely, a ‘lifetime annuity’ (which provides guaranteed income for life) or a ‘fixed annuity’ (which provides a guaranteed income for a fixed term).
Typically, the overall cost of an annuity for life can be higher than for one with a fixed term because insurance companies tend to cover themselves if annuity rates increase once the term comes to an end.
Inflation protection
Some annuities come with built-in interest rate rises to offset the risk of inflation.
Joint protection
A joint annuity can provide extra protection for a spouse, in the event that you pass away before them. In these circumstances, they will receive a portion of your pension.
Your health and personal circumstances
Certain conditions and lifestyle variables, such as your age, a history of smoking, or poor health may mean you qualify for an enhanced annuity.
How much money you want to ‘exchange’
The greater the sum of money you exchange for your annuity, the larger the annuity payments will be.
What do I need to know about annuity charges?
There was a lot of controversy around the cost of annuities in the UK a few years ago (at the time of writing). The annuity industry received a lot of bad press for what many argued were excessive, and opaque charges.
However, since 2013’s Retail Distribution Review, the industry has worked towards increased transparency in pension products.
The excellent pension experts we work with can help you break down the exact costs for any annuity product that you may be considering. Get in touch if you’d like a little guidance.
The charges you may have to pay for an annuity
How much is an annuity going to cost you? It depends on the annuity in question, and who you buy it from. The costs to purchase an annuity can include:
- Administration fees. Your pension scheme provider may charge you for various administrative duties including postage costs, accounting, and record-keeping.
- Advisor fees. You may be charged due to your advisor, or sometimes due to the scheme. This may be charged as a fixed fee, or as a percentage of the total purchase price.
- Tax. Annuity income is taxable. Typically an annuity provider will deduct tax before paying you.
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How do I get the best prices?
Getting your ideal annuity price will mainly come down to choosing a policy with the right number of relevant features. The more ‘bells and whistles’ that the annuity offers, the more it’ll cost you. When choosing an annuity, you can reduce your costs by ensuring that you only pay for what you need.
The key to getting the best deal that you qualify for is enlisting the help of an independent pensions advisor who has whole-of-market access. They can compare all of the available deals on your behalf and introduce you to the provider offering them.
We can put you in touch with pension experts who can source the best deals for you. Give us a call on 0808 189 0463 or make an enquiry here for a free, no-obligation chat.
Getting an enhanced annuity
Depending on your health and lifestyle factors, you may be entitled to an enhanced annuity. If you are, you’ll likely be offered a better deal. Get in touch to find out more.
Speak to an advisor about annuity costs
If you have questions about how much annuities cost and want to speak to an expert for the right advice, call Online Money Advisor today on 0808 189 0463 or make an enquiry here.
Then sit back and let us do all the hard work in finding the pension expert with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
FAQs
Variable annuities are annuity products that include some of the features of an annuity and are similar to income drawdown products. In practice, they provide a guaranteed income, but also allow you more control over your funds so that you can decide how your money should be invested.
They are arguably some of the most complex annuities on the market. As such, variable annuity costs tend to be higher than those for other kinds of annuities.
The term ‘equivalent annuity cost’ is often used when comparing how much it would cost you to buy an annuity that paid out an equivalent guaranteed to what you’re already getting (often from a defined benefit pension).
For example, if you have a defined benefit pension that pays out £10,000 a year, the equivalent annuity cost is the amount of money that you’d have to spend on an annuity that would also pay out £10,000 a year.
If you’re looking to buy an annuity, get in touch and one of the expert advisors we work with can help answer any questions you may have.
There are plenty of benefits to buying an annuity through an advisor.
Here are some of the benefits of getting some help from a qualified IFA:
Going direct isn’t necessarily cheaper
In many instances, the fees that you may expect to save by foregoing advice will be built into additional product charges. In fact, many firms that sell annuities won’t allow you to buy one directly without taking financial advice first.
Additional Protection
If you buy an annuity directly (without professional advice), this is known as ‘execution only’. Because it’s you who made the decision, you may have less legal recourse if you decide that the annuity isn’t right for you later.
Expert advice
If you’re not 100% confident about doing it yourself, the services of a professional could buy you peace of mind in your retirement – saving you a lot of money and hassle later down the line.
Ask A Quick Question
We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.
Tony Stevens
Finance Expert
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.
