Ten worst places to put your money. 3. Annuities

If you have any friends or relatives who are about to retire and may be thinking about buying an annuity, please please talk to them and help them avoid making the worst financial decision of their lives. People already receiving annuities are losing around £8 million a day from being sold the wrong products at the wrong time. This gives insurance companies about £2 billion a year in extra but undeserved profits. There are two major mistakes you can make with annuities. 1. Buying too early – when pension savers reach 65 they’ll be contacted by their pension company or financial adviser suggesting they buy an annuity with their savings. They want you to buy immediately as this gives them your money. But you’re much better off waiting for at least 5 to 10 years because the older you are when you take an annuity the more money you’ll get. Plus you’re likely to get ill sometime around your seventies. Then you can get more money from an ‘impaired’ or ‘enhanced’ annuity. And your situation might change – your partner might die – but if you’ve already taken a joint annuity (where you get much less than a single-person annuity), you can’t change this. 2. Not using the OMO – by law your pension company has to tell you about the Open Market Option (OMO). The OMO means you can buy your annuity from any provider, not just the company that has your pension savings. Often, pension companies will hide this in the small print so that you don’t notice it. Or else your financial adviser will push you to take the annuity which gives them the greatest commission, but is not necessarily best for you. Yet there are plenty of comparison websites (e.g.moneysupermarket.com) where you can find the best-paying annuity for your circumstances.

Remember, with most other financial decisions, if things go bad, you can usually get out with some of your money. But once you’ve signed away your life savings for an annuity, that’s it – they have your money and you can never change your mind. So you must avoid these two mistakes that too many people make unless you really want to make yourself poor and financial services insiders rich at your expense.