Making sure you select the correct annuity options can be a difficult and sometimes complex decision. You only get one chance to make this choice.
Please see below for our guide to annuities, if you feel you have sufficient information to make your own choice, feel free to request a free, no obligation, quote. This can be a quick annuity quote or a full annuity quote and application pack.
If you are unsure of how to proceed, we offer a full independent advice service, if you wish to receive advice or discuss alternatives or have any other questions, please do contact us.
When you have saved your money for many years in a pension plan, with or without your employer contributing, there will come a time when you wish to convert these savings into an income; as well as probably taking a portion of the fund as a tax free lump sum.
An annuity is the simplest and most popular way of turning a pension fund into income.
The concept is actually very simple - you have a pot of money, an insurance company offers you a secure regular income from that pot which they pay you for the rest of your life.
The amount of annuity income you receive will be affected by your circumstances (for example - your age, the size of your fund, the state of your health and if you smoke or not) as well as the market in general ( for example - annuity rates and investment yields).
Once you have bought your annuity with your pension fund it is normally fixed and offers a secure income for the rest of your life; there are options though that allow you to purchase an increasing income or guarantee your income for a number of years even if you die.
Because an annuity is the simplest method of buying a pension income in retirement it is not very flexible. The majority of annuities cannot be altered, surrendered for cash or transferred to another provider.
If you are now ready to purchase your annuity you must choose the options carefully and make sure they suit your individual circumstances.
It is possible to add various options onto an annuity. Each option you add reduces the income that you receive compared to a single life annuity but equally if you choose a single life annuity the payments will stop when you die. The following are the most popular options available on a conventional annuity.
Joint Life Annuity: This pays your income until you die and then carries on paying to a named partner or dependent for the rest of their life too - usually, although not always, at a reduced amount.
Guarantee Period: You can select a minimum period that the annuity must be paid for. Most typically this will be five years and it means if you were to die within five years of buying the annuity the insurance company will continue to pay the income to your estate until the fifth anniversary.
Escalation: Here the income at outset will increase each year either by a fixed percentage (3% or 5% for example) or inflation. An increasing pension will start at a lower rate, but providing you live long enough will eventually overtake the level pension.
Enhanced or Impaired Life: If you smoke or have an illness then you could qualify for for a higher income. Some specialist insurance companies will improve your annuity rate in these circumstances.
Whilst an annuity plan is a relatively straightforward contract, the decisions surrounding the purchase are anything but.
The annuity option used to be the only way of converting pension savings into an income in retirement but now there are a wide range of alternatives available including Income Drawdown, Fixed Term and Investment Annuities.
We will be happy to discuss any or all the alternatives.
Even if you do decide that annuity purchase is for you, it is an impossible task to know which options to add - again please contact us to talk these through.
Normally a Tax Free Cash Lump Sum of 25% of your pension fund can be taken. Whilst this is paid free of tax any pension income is taxed as earned income.
mylovelyretirement.co.uk is a trading style of Farsight Financial which is authorised and regulated by the Financial Conduct Authority.
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MyLovelyRetirement.co.uk (MLR) is a trading style of Farsight Financial which is authorised and regulated by the Financial Conduct Authority.