12:24 25 February 2013
Third Way annuities have been popular in America for a while, but are relatively new to the UK market. They aren’t a traditional annuity and operate more as an unsecured pension with a few guarantees. Here are a few things to know about these third-way annuities when doing your retirement planning:
•Flexibility of an unsecured pension with protection against investment risk.
•Superior death benefits to those of a traditional or conventional annuity.
•Protection level varies depending on the product and provider.
•May be more complex to understand and require the involvement of an Independent Financial Advisor (IFA).
•No rate guarantee at the end of the short term.
•Payout may be for a certain term, or until a certain age is reached.
The end result is that anything which may offer superior payouts or benefits typically comes with more risk than with a conventional annuity. As is the case with any retirement planning, it can be beneficial to consult with an IFA who can interpret all the jargon so you can more easily compare between the various options.
Annuities and drawdowns are other options as well, but the same rule of thumb applies. Drawdowns, which may allow more freedom and possibly greater monetary return, also incur greater risk than the conventional annuity. Each person’s situation is unique, and as such, you must decide what choice or choice combination best suits your individual needs for retirement planning.
If a higher-risk product doesn’t sound like the right thing for you, you will probably want to choose a conventional annuity. An Independent Financial Advisor (IFA) can offer valuable advice, so if possible take advantage of their services before you purchase a third-way annuity or choose another option. Annuity purchases are a permanent deal.
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