What are Guaranteed Annuity Rates?
Guaranteed Annuity Rates, Or GARs, are like a conventional annuity that offer a lifetime income in exchange for a pension fund, however the rates that GARs have are usually much better than market rates and are only attached to certain pensions.
Pensions with GARs are usually from older contracts, typically during the 1980s/1990s when annuity rates were higher than they are now. You would have an invested fund, like a typical defined contribution pension, but the provider would guaranteed these promised rates.
As recent normal annuity rates have fallen, GARs often look very attractive.
Common pension providers that have offered GARs in the past include:
- Royal London
- Sun Life Financial of Canada
However, while they do certainly have advantages, there are some potential downsides.
One of the main downsides is the fact that they are too restrictive. In order to qualify for the GARs, you may have to have a specific type of annuity. For example, this could be a single life, level basis with only a 5 year guarantee period.
What this means is the annuity would only be paid to one person, would not increase once it is being paid and if you were to die after 5 years, it would stop being paid.
GARs might not offer any protection for a spouse or your loved ones.
If you have a pension with GARs, and are want to talk it through with a UK Qualified Financial Adviser, contact us today.
You do have the option to transfer your pension with GARs away and opt for flexible-access or a different type of annuity.
However to do this, under the current legislation, if your fund exceeds £30,000, you would require financial advice from a regulated adviser.
If you are in ill health, a pension with GARs may not be most suited to you. Depending on your circumstances, you may wish to have the pension as larger fund, or taken out as one lump sum. Alternatively, you may qualify for a medically enhanced annuity which is an annuity that takes into account certain medical issues.
By transferring to flexi-access drawdown you could take money from your pension pot as and when you please, rather than having a restrictive income that may be offered by the GARs.
If you have a pension with GARs and want advice, or have any questions, or just want to have a chat about it with a UK Qualified Independent Financial Adviser, then phone now on 01793 686393 or contact us online.