Annuities

Everyone is different and annuities come in all shapes and sizes. There are lots of extra features tat you can add to your annuity to tailor it to your personal circumstances.

Standard Or Enhanced Annuity

Standard annuities assume that you are in good health but if you have below average life expectancy, you can apply for an enhanced annuity which will pay a higher income at the outset

Single or Joint Annuity

A single life annuity pays a higher level of income but stops when you die. If you are married, in a civil partnership, or cohabiting you can choose to have a joint life annuity which will continue to your partner if you die first. You can choose how much income your partner et if you die first.

Guarantee Period

A guaranteed period ensures annuity payments are made for a minimum term even if you and your partner die during that period. If you selected a 5 year guarantee and died after 2 years, income would continue to be paid to your dependants for a further 3 years

Level or Escalating Payments

A level income pays the highest income from the outset, but will never increase and is likely to lose its buying power as you get older. A income that guarantees to increase each year, 3%, 5% or RPI for example, will start at a much lower income level but increase over the years.

Payment Mode

Annuities are usually paid monthly but can be paid quarterly, half yearly or annually. You can choose to have payments made at the beginning (in advance) or at the end (in arrears) of the chosen payment period. The longer you leave it before you receive the first payment, the higher the income at the start.

When you retire you do not have to arrange your annuity with the company you have invested your pension with. You can substantially increase your pension income by purchasing your annuity from the company which pays the highest income. This is called “The Open Market Option”.

Investment linked annuities combine many of the advantages of traditional annuities such as an income for life, with some of the advantages of drawdown such as and the option to invest in the stock market.

Most flexible annuities have the following advantages:

• Potential for future income growth – By investing in the stock market flexible annuities have the potential to pay a higher income in the future. However if investment returns are lower than expected future income could be less
• Income flexibility – Income can be taken within an upper and lower limit and may be changed from time to time
• Income guarantees – Normally there is an option for a minimum level of income to be guaranteed
• Control over investments (except with-profits) – There is a wide range of investment options to suit your attitude and capacity for risk
• Choice of death benefits – The normal annuity options for joint life income, income guarantee periods and value protection are available

The most well-known annuity in this group is the ‘With-Profit Annuity’ which as its name suggests is invested in a with-profits fund.

A Fixed Term Annuity (FTA) is an investment within a drawdown plan which provides guaranteed income payments for a set number of years. At the end of the term there will be a guaranteed maturity payout which can be reinvested in an annuity or a drawdown plan.

The policy can be set up on a joint life basis and with a guaranteed income period or value protection option. This means that on death before the policy matures, income payments will continue to a surviving spouse / partner or a lump sum less 55% tax can be paid depending on the options chosen.