Squeezing better value out of your pension

Squeeze value

At this time of year, I get lots of annuity enquiries.  That gives me lots of work to do and lots of case studies to blog about.  Today, I’ll tell you about Mr T.

He’s coming up for age 65 in June, so we met in November to do a bit of pre-retirement work and to talk about whether he could afford to get his money now, instead of waiting until June.

Mr T is not in great health and he’s also a widower.  These facts are huge advantages when we’re shopping for annuities and I put them to maximum advantage.

The first thing we talked about was the fact that his pensions are still invested in the stockmarket.  Great, if his fund goes up by 5% before he wants his money.  But what if it goes down by 5% instead?

“Risky.”  I said.  Naturally, we did something about that – straight away.

Here’s what I came up with for the annuity.  An extract from my letter says it most clearly:

“…Your two personal pension policies combined would provide you with a cash lump sum of £3,381.80 plus £605.40 per year.
The best rate I can find will provide £784.44 per year plus the same lump sum.

The buy-out plan from your old employer would pay £10,383.31 plus £1,557 per year which will increase by 2.5/3% each March to keep pace with inflation.
The best rate I can find to replace that would be £9,851 lump sum (slightly lower) plus £2,437.92 per year but itwouldn’t increase to counteract inflation…”

I have removed the pension company names but I can assure you that the names are three very well-knownUK companies so you really should shop around.

How did I do it?  The clues are here: “…not in great health and he’s also a widower…”

I took a full medical history from Mr T and asked 8 annuity companies to give their best rate.  The rate tends to be higher for poorly people.  Now, Mr T is not that ill.  In fact, four of the 8 companies didn’t think he was ill enough to be worth an enhancement above their normal terms!

I also had a long discussion with Mr T about inflation.  Because of his health and – ahem – life expectancy, we agreed to do without inflation protection.  We talked about how damaging a long period of high inflation would be and how pensions lose their buying power when they are not linked to inflation.  But, we also talked about how much lower inflation-linked pensions start out at, compared to level pensions, and we talked about the fact that his old employer plan is not fully inflation-protected anyway.

Finally, we agreed to get rid of the widow’s benefit because Mr T is confident that he won’t re-marry.

In short, I just did my job.  Mr T is happy.  Who do you know could do with some help.  Call me, we can meet up if you’re local, but I can do annuities by post, too.