Gearing up for your pension

Simplicity in stability

It’s important to understand what an annuity is, and the difference it can make to your retirement income. The money that has been stored away in your pension pot over your career, earned through dentistry or otherwise, can be accumulated, and a portion may be designated to purchasing an annuity.

This will provide you with a stable annual income for life, with a myriad of stipulations dependent on the type of deal you acquire, and from whom you purchase it. In its most basic form, you would receive a steady income stream following retirement. The rate may take into consideration your age, your health, and budget to spend on the annuity.

The younger you are, the lower your income rate from the annuity will likely be. This is because the value will account for your life expectancy, and its difference to the purchasing age. For example, a 60-year-old would have a markedly lower annual rate than a 75-year-old with a similarly clean history of health issues. The younger individual has a longer period wherein they are expected to use the income, and so the annuity value will be stretched thinner over the ensuing years.

Annuity assurances

Finding the right annuity for you will offer a number of benefits. It’s worth considering that this may not be the same as a colleague’s, and choosing between agreements should not be done on a whim.

The most basic option is perhaps a level annuity. As the name suggests, payments remain stable over time. A dental professional would be able to retire, exchanging their pension pot for an income that is simple to plan for month to month. These may pay greater instalments at first compared to some variable deals – an appealing short-term benefit – but beware of the threat of inflation. In the years to come, it may leave you with less spending power, and the smallest rise in the inflation rate could prove troublesome.

Conversely, an escalating annuity could be designed to raise at a fixed rate or in line with the Retail Prices Index (RPI) in an attempt to keep your income relatively stable over time. This will, of course, aid in part against any impact of inflation, but will likely mean that initial payments are lower, since the funds will have to stretch into the future.

It’s worth talking through your medical history with a potential annuity provider to see how an offer may change. An impaired or enhanced annuity could increase the value of the payments you receive if a short life expectancy is presumed. Dental professionals may be eligible if they live with a medical condition such as diabetes, heart disease or high blood pressure, or if they are obese or a regular smoker. Providing accurate information could not only aid your application in its value, but will ensure your provider cannot withdraw it at a later date.

Don’t make the decision alone

Choosing the right annuity agreement for your lifestyle and spending demands is essential. You may want to assess your options to see how they work alongside your NHS pension, if you haven’t solely committed to private care. It may also be worth finding an annuity that continues paying your pension to a spouse after you pass – called a joint life annuity – for further stability.

It looks to be prime time to purchase an annuity too, with rates soaring by around 54% in just the last two years.[i] Seeking advice from the experts at money4dentists could help you find the best possible plan, and make the most of your investment. The team at money4dentists are committed to helping dental professionals find the solutions that suit them best, and will traverse the complex terrain of today’s pension annuity offers for your ideal agreement. With decades of exclusive advice for those in dentistry, money4dentists understands the unique intricacies of the profession, and how it affects your pension choices.

Annuities are back in vogue, and it’s never been more important to purchase the right option when retirement looms closer. Consulting sound financial advice and understanding what you may want from your post-retirement income is the recipe for success and stability, long into your twilight years.