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Single-Life Annuity: Are Your Putting Your Spouse at Risk?/ 15.8.2013• A. Velasco• Posted At 06:00 PM

The annuity purchasing process is full of choices, which can be overwhelming for retirees as most people go through the process only once in their lives. Because Britons on the whole don’t have much experience in buying annuities, it can make people rush to purchase an annuity with highest starting income without thinking of other factors. One such important factor is your spouse: if your annuity ‘dies with you,’ meaning payments stop after your death, will he or she have enough money to live comfortably?

Best option vs best rate

While getting a great annuity rate is important, experts such as former Downing Street pensions adviser Ros Altmann think that too much emphasis is put on getting the best rate.

What’s really important, she says, is getting the right retirement product for your needs.

Currently, around 400,000 annuities are sold each year, and 80% of these are single-life annuities. That means that they pay out only to the annuity holder, and cease payments when they die. According to Altmann, this puts 250,000 widows and widowers in danger of losing their partners’ pensions when they die, potentially crippling them financially at the most vulnerable time in their lives.

The fact that so many people are leaving their loved ones vulnerable when purchasing an annuity isn’t because consumers want the best rate above all else, but because they aren’t given any education as to what to consider when purchasing an annuity and how to make the best choice for their needs.

’Betraying’ the ignorant

According to the FT Adviser, former director general of over-50s group Saga Ros Altmann said: “The UK annuity market is set to betray thousands of people as most don’t understand how annuities work. Having saved for decades, if they buy the wrong product their partner will be left with nothing when they die while the insurer pockets most of their pension fund.”

This generation of pensioners, more than the future generations that will come, are particularly at risk of being left vulnerable after their spouse dies. That is because women who are in their 50s and 60s today are most likely to depend on their spouse’s pension to secure a decent living in retirement.

While it’s very important to compare annuity quotes for the best rate, Altmann feels that “all the emphasis of annuity reform has been on encouraging people not to just accept the annuity offered to them by their pension company, and to shop around for a better rate.”

However, there’s much more to it than that.

“Just going to an annuity broker and obtaining a better rate may be better than nothing, but will not be the best for the customer. They need help finding the right product first,” said Altmann, who went on to say that obtaining financial advice is crucial at this stage of the retirement process.

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