Why it pays to seek advice

Wednesday 3rd July 2013

On the 2nd June ‘The Mail on Sunday’ published an article titled ‘‘’Keith died 20 months after spending £280k on an annuity. Now I get nothing”: Widows face poverty as pensions are wiped out.’*

Imagine the thousands of people that were settled down enjoying their Sunday morning latte whilst reading the paper who then turned to that article and descended into a state of panic about their pensions that had seemingly disappeared before their eyes.  Their latte no doubt spluttered all over the kitchen table.

But why exactly did they panic? Had their pension pot just evaporated or was it a case of the article’s headline insinuating a far more sinister outcome then necessary?

Fortunately, the latter is true. The papers, that unfortunately so many of us take as gospel are yet again responsible for scaremongering the public due to a scenario which could have easily been avoided if the individuals involved had sought proper advice. For example, would you buy a house which hadn’t been surveyed and properly valued? No. Or would you buy a car that you hadn’t taken for a test drive? Probably not, no.

Therefore why would you decide not to take any financial advice on a decision that will impact the remainder of your life?

An annuity is best described as ‘any continuing payment with a fixed total annual amount.’ This can be written on a variety of basis’s; it can be single life or joint life; index linked or level or it may include a guarantee – typically 5 or 10 years. If you choose a joint life option this can be written on a 50% or 100% basis, meaning that your spouse will receive a payment from the annuity in the event of your death.

Typically a married person would choose a joint annuity as they wish to provide for their spouse in the event of their death however this will naturally reduce the rate of return. For example an annuity with a return of 6% per year may drop to a rate of 5.5% per year**.

However, this is not set in stone. Plenty of married people feel that because their spouse has their own pension they do not need an additional income. Additionally plenty of married people may feel that their money is their own, to do with what they wish and that their spouse is not entitled to share it. It is not the job of the provider to determine why the client is choosing a single life annuity. Equally, think of how many people write wills and cut out specified family members or favour one over the other. It is not the job of the will company to question their logic or refuse to write the will.

The key point to emphasise here is that unless you seek financial advice from a suitably qualified professional then you are leaving yourself exposed to financial disasters.  Don’t delay, pick up the phone and see how many spilt lattes AEON can save you from today.

* http://www.dailymail.co.uk/money/pensions/article-2334332/Widows-face-poverty-pensions-wiped-annuity-choice.html

** http://exweb.exchange.uk.com/

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