THOMSONS ANNUITY SERVICE IN ASSOCIATION WITH THE OPEN MARKET ANNUITY SERVICE
“The question isn’t at what age I want to retire, it’s at what income.” George Foreman As an employee in the modern workplace, you are likely to have been in your current employer’s pension scheme, saving for retirement. In fact, you may have accumulated a series of defined contribution pension plans from the jobs you have had over your working career. You may even have arranged additional private pension saving outside of work. Nowadays, it is certainly not unusual for someone to have accumulated numerous pension plans. The Government has announced that from April 2015, you will have far more choice and flexibility concerning what to do with the pension funds which you have built up whilst working and you will no longer have to purchase an annuity with your pension fund (after possibly taking a tax free lump sum). However, buying a lifetime annuity will remain attractive to some as it is one way to receive a regular, predictable income that is guaranteed to last you through your lifetime, however long that may be. If you wish to convert a pension fund into an annuity, the same concerns will still apply; namely how can you ensure that the annuity you will be purchasing includes the options you want, will take into account any medical or lifestyle issues that are unique to you and will be the “best deal”? If you decide that an annuity is the retirement income product for you, the next stage is to ‘sell’ your pension fund and ‘purchase’ the annuity. This may seem daunting and confusing; where do you obtain information and meaningful comparisons? How do you actually go about the process of buying an annuity? Have you considered and selected all of the options you need within a lifetime annuity? Things will no doubt be even more complicated if you are trying to arrange an income from multiple pensions. The increasing length of retirement
Life expectancy
35
Males
30
Females
25 20 15 10 5 0
55
56
57
58
59
60 61 62 63 64 65 Age at retirement in 2014
66
67
68
69 70
The statistics show that on average we are all living longer. As the graph shows, based on data from the Office of National Statistics (ONS), life expectancy is still increasing and is likely to continue to do so. While living longer is probably welcomed by most of us, it also means that our income in retirement will have to last a lot longer as well. To put this into context, in 1981 a 65 year old male could look forward to, on average, a 14 year retirement. By 2011, this had risen to 21 years and by 2041, it is predicted to be nearly 25 years. That’s a 78% increase in 60 years. The figures for females in each case are even higher. Clearly, none of us knows how long we will live and just to add a little more stress at a time when you want to probably start to think of relaxing, you only have one attempt to get your annuity income set up with the options you require. There is very little scope to amend a lifetime annuity or add/delete options once it is set up, so the annuity decisions you make at retirement will be staying with you for a long time. Therefore, time invested now in making sure you get what you need, should indeed be time well spent.
The Open Market Option (OMO) Just because an insurer has offered good service and pension plans while you are saving for retirement, does not necessarily follow that it will be the best available for your annuity. It may be, but how do you know?
You have a legal right, called the Open Market Option (OMO), under which you can arrange your annuity with a different provider to the one you have been saving with and while more people nowadays realise that the OMO exists, this knowledge is certainly still not universal. The National Association of Pension Funds assessment is that the average annuity income obtained by securing the best deal, as opposed to staying with the provider used for saving is 20% higher and the Government’s Work & Pensions Committee considers that this rises to 40% for annuities where the individual’s medical history and/or lifestyle are factored in. ‘Shopping around’ for the best deal, at worst, will offer peace of mind by showing you that your current pension provider is offering the best annuity deal. More likely, the comments above indicate that you may be able to improve the income level you are being offered by utilising your right under the OMO.
Tax free lump sum Remember, when arranging your annuity you also have an option to normally take up to 25% of the fund value as a tax free lump sum (technically called a Pension Commencement Lump Sum).
Impaired and/or Enhanced annuities If you are a smoker or have a medical condition (or even possibly if you are on long term medication) you can often get a higher pension income through an impaired or enhanced annuity. Not all annuity providers can offer these special annuities so it pays to look at the whole annuity market rather than at just one annuity provider so that you don’t miss out on extra income. ABI research shows that more and more annuities are being arranged on an enhanced basis; 28% in 2013 compared to only 2% in 2003 as individuals realise that declaring health and lifestyle issues could possibly benefit the level of annuity income offered.
This all sounds confusing, can Thomsons help me?
I only have a small pension pot – can I use this service?
Yes we can.
Yes. The ABI reports that the average pension fund used to buy an annuity in 2013 was £35,600 and therefore many are much smaller in size than this figure. The reasons to shop around do not change solely because a fund is “small” but there may be fewer providers to choose from, particularly for funds below £10,000.
OK, so how can Thomsons help? Thomsons has teamed up with The Open Market Annuity Service (“TOMAS”) to provide you with access to a specialist annuity brokerage because, after having saved for retirement, it is essential to make the right decisions if organising an annuity. TOMAS specialises solely in sourcing lifetime annuities using the Open Market Option for individuals and can secure annuities from the majority of the lifetime annuity providers in the UK. So, whether it’s a standard annuity you require or perhaps an impaired or enhanced version due to being a smoker or having a serious medical condition or a history of one, TOMAS will be able to assist you. The Open Market Annuity Service is an appointed representative of Just Retirement Solutions Limited which is authorised and regulated by the Financial Conduct Authority, just like Thomsons.
What does this service involve? Once Thomsons know that you are interested in looking for a lifetime annuity, we will need to capture some very basic information from you. Don’t worry, we’ll send you a very short form which we will partially pre-complete for you (where possible) with the basics we have on record. Once you return it to us (and with your approval) we will pass your details to TOMAS. They will then take over completely and produce an annuity report for you giving you all the information you will need to make an informed decision about which annuity is the best for you. Once you have decided, TOMAS will liaise with your current pension provider(s) and the annuity provider to set up the annuity. They will deal with all of the administration involved.
Will I be getting advice? The information TOMAS will supply you with is comprehensive and easy to understand. This will normally be sufficient for most people to make an informed decision about how to proceed.
Research shows that people with small funds are less likely to shop around but those that do are more often arranging an enhanced annuity which improves the income available by factoring in health and lifestyle issues unique to the individual.
The benefits to you Using the service will: • Provide you with a personalised and comprehensive report covering all aspects of lifetime annuities • Allow you to see if the income being offered by the pension provider you have saved with is the highest available (based upon selecting comparable options) • Allow you to see the impact of adding options such as a spouse’s pension or an increasing pension income to counteract the effects of inflation while retired • Allow you to amalgamate multiple pension plans you have used for pension saving into one pension income • Allow you to possibly obtain a higher income: • if you are a smoker • if you are on medication • if you have health issues • Allow you peace of mind in knowing that you selected the right annuity (and annuity provider) for your needs • At the very least show you if the provider you have been saving with offers the best value for the annuity you want (remember, not all providers offer annuities)
£INCOME
According to the ABI, the average pension fund in 2013 was nearly £35,600. Therefore (and to keep down costs to you), no advice will be given as part of this service by either Thomsons or TOMAS and TOMAS will proceed on the basis that you have decided a lifetime annuity is what you want. If you think you need advice, please contact your usual financial adviser.
Does the service cover other ways of setting up a retirement income? No it doesn’t, although the report you receive from TOMAS does cover other ways of doing this. This service is for people who have made a decision to arrange a lifetime annuity and to obtain the ‘best deal’ so if you wish to look at other options, please contact your usual financial adviser.
Will the service also be open to my spouse or partner? Yes. Just let us know when you speak to us.
What will the service cost? Neither Thomsons nor TOMAS will charge you a fee for using this service. If you subsequently arrange your annuity through TOMAS, it will normally receive commission from the annuity provider (some of which will be given to Thomsons). The amount of any commission will be disclosed to you in full.
I want to use this service so how do I get in contact? Getting in touch is simple. Either call Thomsons on 0203 3284000 or email us at
[email protected] and we will start the process for you.
Gordon House 10 Greencoat Place London SW1P 1PH T: +44(0)20 3328 4000 F: +44(0)845 4588 629 E:
[email protected] W: thomsons.com
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