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Annuities
Annuities can provide a lower risk simple solution to your pension income problem

Annuities are a form of single premium insurance purchased from an insurance company. The insurance company consider factors such as your life expectancy, health, lifestyle and the expectations of long term interest rates. From this the company will then set their annuity rates applicable to you at that time. The annuity rates from different insurance companies can differ and therefore the open market option should be investigated before making a commitment to see what the very best rates on offer for you are.

Your existing provider will give you a quote stating how much is in your pension plan, how much tax free cash you may take and what your expected income might be should they provide the annuity. The pension payment can be monthly or quarterly depending on how much income it is paying to you. The minimum payment frequency is annually.

The initial quote you receive is often based purely on the policy holder's life and therefore is unlikely to include any pension for your spouse or civil partner. It also may not include recent health issues and lifestyle factors that can affect the amount you would receive. We would always strongly recommend that you seek advice before accepting the first figures.

Adding a partner to your pension income will reduce the initial income you receive. Further bells and whistles such as an income guarantees, investment protection and increasing index-linked incomes will also cause the initial income to start lower. If you are concerned about dying early you can guarantee the income to pay for at least 10 years (5 years for protected rights).

There are a few investment annuities on the market, it is important to be aware that although these can provide an increasing income, the income can also fall.

  If you are in poor health with a reduced life expectancy then you should look into impaired life annuities. These take into account your medical conditions and could provide a higher annuity rate. A financial adviser should be able get quotes from a number of providers to make life easier for you. If you wish to use the annuity to provide for a healthy or younger partner, an enhanced annuity may not be suitable. A lifetime annuity with Pension protection lump sum may be more suitable.

For those with unhealthy life style factors, such as smoking or obesity an enhanced annuity may again provide higher rates.

Annuities are a one off choice and once they are set up you are not able to make changes in the future. Though you will have a 30-day cooling off period to change your mind.

Before making your final decision you should consider consolidating all your pension plans into one pot as you may receive a higher annuity rate when buying in bulk. Every provider has times when they are interested in annuity capital and therefore it is important to consider using the open market option.

On death or at the end of the guarantee period the remaining value of the annuity purchase price is paid to the insurance company to help pay for the members with a longer life expectancy.

There are many retirement income choices to consider before making a decision that will affect the rest of your life. If you would like some help we are happy to guide you through your options you can contact us for a free consolation

 
 
Pros and Cons of Annuities
 

Advantages of an annuity

  • Simple and easy to understand
  • Low Risk
  • Stable and predictable income
 

Disadvantages

  • Little option for increasing income, which would start at a lower income
  • You can't change to Pension income drawdown in the future
  • Limited Death benefits
  • Capital value can't grow
  • Capital value can't be transferred to Spouses or civil partner's pension
 
 
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