Inflation has risen above 10 percent for the first time in 40 years, according to the Office for National Statistics (ONS). People are now under significant pressure from the cost of living crisis, which was recorded at 10.1 percent in July.
This issue can be problematic for retirees who have choices about how they receive their income.
An option that is once again gaining popularity is annuities.
An annuity provides Britons with a regular guaranteed income in retirement.
Often, instead of relying on the highs of the stock market, individuals can take their pension pot and buy an annuity during retirement.
Mr. Selby pointed out that people typically buy annuities without inflation protection.
While this hasn’t necessarily been an issue in recent years, it can create a serious problem as inflation picks up again.
He continued: “These people risk being brutally exposed to inflation.
“85 percent of the 60,000 annuities bought in the 2020/21 tax year were ‘status only’. This means they have no inflation protection.
“Just 15 percent of the annuities purchased were ‘increased,’ meaning they rise with inflation.”
With a lifetime annuity, the decision can’t be reversed once the purchase is made – and Britons can’t change their minds later.
As a result, it pays to shop around to find the best annuity deal in any economic situation.
Government-backed website MoneyHelper says individuals should understand the various options.
This will help them know:
- When will they receive income?
- How much they get
- What they can protect
- To whom it can pass if they pass away
The website added: “If you need help understanding how and when you can access your pension pot, you can speak to someone at Pension Wise, the Money Assistant’s free service.”
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