Donna Bradshaw is an IFA for IFG Finiancial Services in London

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As it is my money why do I, under UK law, have to buy an annuity with my pension fund in the end?

Why should I have to make a compulsory gift to an issurance company? Why can I not manage my money myself, if I want to? Do you know the magnitude of the annual bonuses in the financial industry? They are obscene.
JB, Leeds

Since April 6, 2006, you no longer have to purchase an annuity at age 75 - you can opt to draw an Alternatively Secured Pension, although you might have a slightly lower income and any residual fund may be subject to a very high level of tax, depending on the beneficiary.

Even prior to April 2006, you could draw an income from your pension fund, managing the investments yourself, up until age 75. However, it isn't suitable for everyone; particularly those whose pension funds and other assets are relatively low as there are risks involved such as charges, market volatility, low inflation and mortality drag.

The latter is effectively the extra investment performance required for losing out on the mortality cross-subsidy in annuities - the impact of mortality drag becomes greater as you get older.

Despite the criticism, often unwarranted, that abounds, annuities represent very good value for many people because they guarantee an income for the rest of your life and therefore there is no possibility of your money running out before your life does.

There are also annuities available that provide much higher incomes, dependent on your state of health (known as impaired life annuities).

It is true that there are winners and losers when you take out an annuity, because of the cross subsidy element, but you can purchase additional guarantees if appropriate.

It is also true that rates are much lower than in the past, but that doesn't mean that they are now worse value for money than before; it is simply that people are living longer and interest rates are significantly lower, both of which have an impact on rates.

There is the risk that you might die early but there is also the risk that you live to a very ripe old age; if you do, it is the people who die early that are subsidising your income.

If everyone lives longer than expected then providers take the hit, which isn't as unlikely as you might think, mortality is improving quicker than expected and margins on annuities are low in comparison to many other financial products.

Donna Bradshaw,
Financial Planning Strategist, IFG Financial Services
02073156566, donna.bradshaw@ifg.co.uk, www.ifg.co.uk