Are annuities really a safe bet?

Buying an annuity upon retiring is a popular choice. But is it really such a good idea, and what are the alternatives? Merryn Somerset Webb explains.

You probably think that buying an annuity with your pension fund is a safe thing to do. Sure, you might not get the best price at the moment what with the government's obsession with keeping interest rates low to save the banks and house builders. But at least you've taken an option that will keep your money safe and you financially secure. However, this is, like most things peddled by the pensions industry, absolute nonsense.

As pensions expert Ros Altmann points out, if you buy a standard annuity in your 60s, you're taking a huge gamble. You are betting that you will live a long life. If you don't buy an annuity, and you die before you are 75, your fund passes to your family tax-free. But if you do buy an annuity, and you die soon afterwards, it's gone "you lose most of your pension savings".

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.