How Annuity Rates Are Calculated

Annuity rates are essentially based on your life expectancy. The pension provider will look at various aspects to calculate your average life expectancy. The main area would be medical history, but they will also consider age, employment history and location as other factors. This information is then used to offer you your annuity rate.

If, for example, you retire at age 65 with a clean medical history, you may be offered a certain annuity rate but if you declare that you are a heavy smoker, this will affect your annuity rates because smokers are likely to live for ten years less than a non smoker. This means that you will receive a higher, enhanced annuity rate. The reason for this is that pension providers calculate that they will not have to pay out your income for as long as if you were a non smoker, because you will live for less years.

With this in mind, you could say that the worse your health, the better your annuity rates!

The best annuity rates can be obtained by comparing annuities. This is known as using the open market option, and is an important part of the annuity buying process. To compare annuity rates means you are researching what other companies can offer you, in some cases this could be an increase in value by 30% of your first offer.

How the pension provider calculates your rates is an important factor to take this into account when searching for your annuity. Some pension providers weigh particular illnesses with higher rates than others so you should always do your research to see what you can get for your money.

After all, this is your retirement and your future income which you are dealing with. Annuities are irreversible once agreed and signed, so it is vital you get it right the first time around.