Savings

Selecting exactly the right annuity to meet individual needs from the many payment options and providers available can be one of the most important decisions a person has to make.

But buying sooner rather than later may be even more important, according to financial research company Defaqto.

Not only is there a realistic prospect of the Bank Base Rate being reduced in the coming months, having the effect of bringing annuity rates down with it, buying early will both secure the current rate but also provide an income that would take many years to replace if the annuity is taken later.

A typical open market level annuity for a 65-year old man in good health, without a spouses income, guarantee or escalation, with a pension fund of £100,000 currently is £7,410. The same annuity, if taken at 64, would typically be £7,234.

So by delaying his annuity until 65, the man would receive an extra £176 per year for as long as he lived. However, he would have forfeited £7,234 by not taking his annuity at 64, and he would have to survive 41 years to make up the difference.

This assumes that the pension fund remains the same over the time in question. Even if it grew 6% in the year between him being 64 and 65, the resulting break-even period would be 12.2 years.

Matt Ward, principal consultant for wealth and pensions management at Defaqto, said: Choosing the right time to take your annuity is specific to your individual circumstances and to your view on future annuity rates, even if your pension pot is protected by being in money or near money assets. So when you decide to take your annuity is just as important as getting the right annuity from the right provider at the right price.