Martin Lewis explains ‘unpopular’ pension product | Personal Finance | Finance

Martin Lewis has spoken about a “great” financial product that pensioners and those planning for their retirement may want to consider. On a recent episode of his BBC podcast, he asked his fans to send in their top tips for retirement.

Listeners sent in a range of suggestions, from making sure you have a plan in place for when you retire, to staying physically fit so you can enjoy you golden years. There were some words of wisdom about finances as well, to make sure you have enough funds to see you through your retirement.

One person who works as a wealth planner wrote in to warn those thinking of taking out an annuity. They advised people not to go for a level annuity but rather to choose an inflation-linked option, given the high levels of inflation over the past few years. They said: “Many are not informed of this and choose the higher starting number.”

In response, Mr Lewis explained how annuities work. He said: “An annuity is a payment each year for the rest of your life until you die. It’s one of the things people used to effectively be forced to do with their pensions, before we had the so-called pension freedom, which means you can use your pension like a bank account.

“But an annuity is still a great concept. The reason it became so unpopular was the rates were poor.” He went on to clarify the point that the listener was getting at.

Mr Lewis said: “What he’s saying is, don’t get a flat annuity. Let’s make it very simple: If you pay for a flat annuity, and it pays you £5,000 a year for the rest of your life, well that £5,000 if you live 30 years will be worth a lot less in 30 years than it is now.

“So pay for an annuity which goes up and is linked to inflation, so you’ll get the equivalent of £5,000 in future money every year for the rest of your life. Clearly, the rate you get at the start would be lower, but it would go up.”

Biggest piece of advice

The consumer advocate went on to share a vital thing you should do when planning for your retirement. He said: “The biggest piece of advice I can give anybody on retirement in terms of the finances, is do not do anything with your pension until you have made a Pension Wise appointment.

“That’s a totally free guidance system offered, it’s non-profit, it’s paid for by a levy on the financial services industry. There are so many things you can get wrong with taking money out of your pension, using your pension money, including not getting an index-linked annuity, including just getting an annuity with your pension provider.”

Mr Lewis restated the importance of arranging this meeting. He said: “The hour appointment you get with these people to give you specific, bespoke guidance is the most important thing that you can possibly do.

“If you’re lucky enough to be wealthy, go and pay for independent financial advice too, but the guidance is free to everyone.”

Changes to pensions from April

If you are planning for your retirement, you may also want to consider when your state pension will kick in. You can check how much state pension you are due to be paid using the state pension forecast tool on the Government website.

The full new state pension currently pays £230.25 a week, with payment rates set to increase 4.8 percent in April in line with the triple lock policy. A key rule to change to note here is that the state pension age will move up from the current 66, from April 2026. The access age will move up in stages to reach 67 by April 2028.

Ensure our latest headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as your Preferred Source in your Google search settings.