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Are Annuities Safe?

A question that is commonly asked is Are Annuities Safe? Well, as a matter of fact, annuites may be a new thing to many but for those who are not yet aware of it, an annuity is a form of financial investment that will provide an income or pension to a person on reaching retirement. In this article we discuss about the safety of this investment choice.

Questions To Investigate When Asking If Annuities Are Safe

Other questions that I want to answer are the question: what would happen if the company from which you buy your annuity expires before you do? Many annuities companies are large insurance companies but after the mayhem in the financial industry over the past 2 years, who knows what is going to happen in 10, 20 or even 30 years’ time? Once handed over to an insurance company, is a person’s hard-earned money protected or securely fenced in any way?

The chances of a big insurer going bust are slim (in some worst case scenarios, there would probably be a government bailout) but as the questions point out, we should never say “never” after the events of the last few years. Generally speaking though in history insurance companies are safe.

Annuities are usually backed by corporate bonds and gilts but the assets do not need to be securely fenced from an insurer’s other assets. So, insurance organizations do not guarantee that the annuity of their customers would be safe in the case they hit the rocks.

The Safety Of Annuities Are Covered By The FSCS

Fortunately, annuities are generally covered by the Financial Services Compensation Scheme or FSCS under the insurance category. This means that the compensation is limited although only 90% of the total claim will be paid.

If possible, the FSCS might also look to transfer the annuity to other provider on a similar term, in which case, you will notice difference except for a possible delay in receiving the pension or income will the process take place. Otherwise, you would certainly claim for the equivalent lump sum value of the annuity based on the amount of a new policy to give the same level of benefits and income. Such benefits and income may include indexation and joint life cover. Eventually, you would soon expect to receive 90% of this value with which is used to purchase a new pension annuity.

Conclusion To Are Annuities Safe

Of course, the FSCS rules and levels of coverage could change anytime in the future but I think it is unlikely for annuity coverage to fall. Take note that ensuring a safe and reliable pension income would be a nice fundamental objective for any government.

The question – are annuities safe, is a good question to ask and it’s something that is worth posing to the annuity company before investing also to get further background information on their specific product or history.