Guaranteed Annuity Rates (GAR)

Many pension products, especially some of the older contracts such as section 226 retirement annuity contracts have built in guaranteed annuity rates (GAR). A guaranteed annuity rate, GAR for short, is a fixed annuity rate, written into your pension contract, at which you can convert your pension fund, irrespective of what open market annuity rates are doing at that time.

What are the advantages of guaranteed annuity rates?

The main attraction of the GAR is that when they were calculated and written into pension contracts annuity rates were considerably higher than they are now, and pension companies of course had no idea that annuity rates would tumble as they have. GARs can produce annuity payments for life that are higher than anything you can get on the open market.

What are the disadvantages of guaranteed annuity rates?

Many of the pension contracts that guaranteed annuity rates are written into were designed to vest at age 65 and therefore the GAR does not apply until that age. Another point to watch out for is that they will normally only provide an annuity on your own life (single life option, so no spouse benefits) and often will not provide for post retirement increases, so if you require an annuity that escalates each year to combat inflation, this may not be possible.

A further point and one that has caught many out is the fact that many of these guaranteed annuity rates were only valid until age 75. This means that you would only get the GAR until age 75 after which you would revert back to the insurance company standard rates, these could be considerably less that the GAR rates.

As always here at we recommend you seek annuity advice from an independent financial adviser.