What happens if an annuity provider goes bust?
When you invest in an annuity, you’re essentially purchasing a lifetime income stream. This means that you’re relying on your annuity provider to be there for you, providing you with the income you need throughout your retirement. However, what would happen if your annuity provider were to go bust? This is a question that many retirees and soon-to-be retirees may be asking themselves, and it’s an important one to consider.
Understanding the risks
Firstly, it’s important to understand that the risk of your annuity provider going bust is relatively low. Annuity providers are regulated by financial authorities, and they must hold a certain amount of capital to ensure they can meet their obligations. However, it’s still a possibility, and it’s crucial to be aware of the potential consequences.
What happens to your annuity if your provider goes bust?
If your annuity provider were to go bust, the first thing to know is that your annuity is not guaranteed by the government. This means that if the provider becomes insolvent, your annuity income may be at risk. However, there are several steps that would typically be taken to protect your annuity:
1. Regulatory intervention: The Financial Services Compensation Scheme (FSCS) in the UK, for example, provides protection for policyholders in the event of a firm going bust. The FSCS can step in to ensure that policyholders receive the benefits they are entitled to.
2. Transfer to another provider: In some cases, the FSCS may transfer your annuity to another provider. This would mean that your income stream would continue without interruption.
3. Compensation: If transferring your annuity is not possible, the FSCS may provide compensation to policyholders. The amount of compensation would depend on the FSCS’s rules and the terms of your annuity.
What can you do to protect yourself?
To protect yourself from the risk of your annuity provider going bust, there are several steps you can take:
1. Research your provider: Before purchasing an annuity, make sure to research the provider thoroughly. Look at their financial stability, reputation, and customer reviews.
2. Consider a with-profits annuity: With-profits annuities are linked to the performance of a fund, and any growth in the fund can increase your income. However, they come with additional risks, so it’s important to understand these before investing.
3. Seek professional advice: A financial advisor can help you understand the risks associated with annuities and recommend the best options for your situation.
Conclusion
While the risk of your annuity provider going bust is low, it’s still a possibility that you should be aware of. By understanding the risks and taking steps to protect yourself, you can ensure that your retirement income remains secure, even in the event of a provider going bust.
