{"id":331031,"date":"2025-12-23T05:17:15","date_gmt":"2025-12-23T05:17:15","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/331031\/"},"modified":"2025-12-23T05:17:15","modified_gmt":"2025-12-23T05:17:15","slug":"i-plan-to-take-my-pension-in-2028-should-i-buy-an-annuity-now-due-to-high-rates","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/331031\/","title":{"rendered":"I plan to take my pension in 2028. Should I buy an annuity now due to high rates?"},"content":{"rendered":"

In our weekly series, readers can email in with any question about\u00a0retirement and pension<\/a>\u00a0savings to be answered by our expert, Tom Selby, director of public policy at investment platform AJ Bell. There is nothing he does not know about pensions. If you have a question for him, email us at\u00a0money@inews.co.uk.<\/a><\/p>\n

Question: I\u2019m planning to access my defined contribution pension<\/a> in 2028 (when I turn 68) and have decided that an annuity is the right option for me. However, I\u2019ve read various articles recently suggesting that interest rates are likely to fall next year and beyond, and I\u2019m wondering if it makes sense to get ahead of that to secure a better rate. What are the pros and cons I need to think about?<\/p>\n

Answer: The decision over how and when to take a retirement income<\/a> is a significant one, so the fact you\u2019re thinking about this in advance is positive.<\/p>\n

New FeatureIn ShortQuick Stories. Same trusted journalism.<\/p>\n

There are two main ways most people take an income from their defined contribution (DC) pensions \u2013 buying an annuity from an insurance company paying a guaranteed income for life, or entering drawdown, where you keep your fund invested and take a flexible income to suit your needs. <\/p>\n

At the point you access your pension, you can usually also take up to a quarter of your pot completely tax free, with the total tax-free cash you can take over your lifetime capped at \u00a3268,275.<\/p>\n

Broadly speaking, an annuity can be a good option if you don\u2019t want to take any investment risk and prefer a stable income. <\/p>\n

Drawdown, by contrast, offers the potential to benefit from tax-free growth and greater flexibility to take an income that can change with your lifestyle, but you\u2019ll need to take a more active role managing both your investments and your withdrawals to ensure your pot lasts as long as you do.<\/p>\n

It is also perfectly possible to combine the two. For example, you could buy an annuity to cover your fixed costs and retain flexibility with the rest of your fund by keeping it invested for drawdown. <\/p>\n

You could also choose to retain flexibility in the early years of retirement, when you might be more active, with a goal of buying an annuity when you\u2019re a bit older and should benefit from a better rate.<\/p>\n

As you\u2019ve already decided to buy an annuity, the first thing to do is review your investments to make sure they are appropriate. <\/p>\n

Most people want a bit of certainty as they approach the point of turning their pension pot into a guaranteed income for life, so they are not at the mercy of market prices at that one point in time. <\/p>\n

This usually means gradually removing investment risk from around five to ten years before the point of access. You might be in a fund which does this automatically \u2013 if this is the case, check the retirement date your provider is assuming matches your plans. <\/p>\n

If not, then you may choose to derisk your fund on your own \u2013 for example, by shifting towards cash and cash-like investments \u2013 or putting your money in a lifestyle fund which aims to \u201chedge\u201d against annuity rate movements.<\/p>\n

I would caution against attempting to second-guess what might happen to annuity rates when making what is an irreversible decision. <\/p>\n

If you take an annuity earlier, you will receive a lower rate (because the insurer expects to pay out an income for longer) and there is no guarantee overall rates will get worse by 2028. <\/p>\n

As we have seen repeatedly over the last five years, interest rates \u2013 which annuity rates follow \u2013 are anything but predictable. Furthermore, interest rate expectations will already have been factored in by the insurance company.<\/p>\n

When purchasing an annuity, you should consider not just the rate but the shape of the guaranteed income you buy. <\/p>\n

This could include baking in inflation protection (so your income rises with prices), opting for a \u201cjoint-life\u201d annuity (where a set income is paid to your partner when you die) or inserting a \u201cguarantee period\u201d (whereby your income will continue to be paid to a nominated beneficiary if you die within a set period of time, such as 10 years).<\/p>\n

Moneyhelper, the Government-backed guidance service, has a great tool which can help you decide which annuity is right for you.<\/p>\n","protected":false},"excerpt":{"rendered":"In our weekly series, readers can email in with any question about\u00a0retirement and pension\u00a0savings to be answered by…\n","protected":false},"author":2,"featured_media":331032,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,4176,17728,4178,4174,4175,4204,56,54,55],"class_list":{"0":"post-331031","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-money-clinic","11":"tag-pensions","12":"tag-personal-finance","13":"tag-personalfinance","14":"tag-retirement","15":"tag-uk","16":"tag-united-kingdom","17":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/331031","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=331031"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/331031\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/331032"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=331031"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=331031"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=331031"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}