Tag Archives: Enhanced Annuities

Get the lowdown on the Two Types of Annuities

An annuity is one of the most popular ways to optimise financial savings and use them to provide a regular income during retirement. Annuities are sold by insurance companies that offer this regular income in exchange for a lump sum – usually from the pension pot. There are many different types of annuities available on the market – but the two main types of annuities are fixed lifetime annuities (also known as level annuities), and variable annuities.

Fixed Annuities

Fixed lifetime annuities – fixed annuities are annuities where the income you receive remains fixed for the rest of your life – or until a predetermined period of time. You receive the income at fixed intervals, either monthly, quarterly, every six months, or yearly. The income you get from a fixed annuity depends on various factors such as the size of your pension pot, current annuity rates, your health and lifestyle, gender, and even your address. This is the most popular types of Annuities.

All these factors help the insurance company work out how much they can afford to pay you as a fixed regular income. You can also add extra features to a fixed annuity such as joint life option – where the income continues to be paid to the surviving partner, or early death guarantee, where the annuity payments continue for a fixed period even if you die during that period.

Fixed annuities can offer the security of a fixed regular income throughout your life. However, they do not offer protection against rising inflation or increasing spending, nor do they benefit from any upward movement in the financial markets in the future. There are different types of annuities that can offer a variable income during retirement.

Variable Annuities

There are different types of annuities that offer variable income during retirement. Variable annuities provide a change in income over the course of the annuity – and this may be due to different factors, depending on the type of variable annuity.

Inflation or RPI linked annuities are linked to the rates of inflation. High levels of inflation in the future will mean that you receive more income and thus have more spending power. On the other hand, fixed annuities offer a fixed income throughout the term of the annuity, so your income could lose its value over time if inflation continues to rise – which it always will.

Some other types of annuities that offer variable income include percentage increasing annuity – where the income increases at regular intervals at a fixed percentage, which is usually 3% or 5% per year. Both these as well as RPI linked annuities generally pay a lower income than fixed annuities in order to compensate for the future rises in income. You can also get annuities with an investment linked component. The investment component is linked to an external investment – so the income you receive will depend on the performance of that external investment and is not guaranteed.

Some other types of annuities include joint annuities where you can have your income paid to a partner after you are gone, and enhanced annuities, where the insurance company pays more based on a lower than average life expectancy. Enhanced annuities are available to those who meet certain health and lifestyle criteria such as regular smoking, health conditions like heart disease, obesity etc.

Fixed annuities have the advantage of providing a guaranteed, lifelong secured income. Variable annuities may offer a variable income which can help combat rising inflation, rising future expenses etc. However, variable annuities will generally pay less than its fixed counterpart in the initial stages. There are many different types of annuities available in the market and the key to finding an annuity or annuities that suit your needs is to shop around, understand each product and then make an informed choice.

Different Types of Annuities

There are a number of different kinds of annuities and in order to get the most out of your choice of product it is important that you know what kinds of annuities are available and how they can benefit you. Firstly, there are annuities which are called Capital Protected Annuities and help provide annuitants with peace of mind. With this kind of annuity if you pass away before you reach 75, the fund that you have built up will be given back to your estate, excluding of course the income that has previously been utilised and a tax of 35%.

There are also impaired and enhanced annuities. A normal annuity is calculated to accommodate a life expectancy that does not reach beyond the average, so if you have an illness or condition that would decrease your life expectancy you can apply for an enhanced annuity or an impaired annuity. About a third of people reaching retirement have the potential to get an enhanced or impaired annuity. These annuities will give you extra income, so it is an excellent thing to apply for. Typically those who are smokers, overweight or have a history of cancer or heart disease are likely to get annuities of this kind.

Annuities which are called investment linked are annuities which are linked to the stock market. With this kind of annuity you can get the basic benefits of an annuity plus the potential of stock market development and what this could mean for your income. However, due to its link with the stock market there is no guarantee that an investment linked annuity will increase your income or improve it in any way.

With-profits annuities level out your investment over a period of time, this means that when you take out an annuity like this you choose an ABR or Anticipated Bonus Rate. If your anticipated bonus rate is lower than the insurance company’s then your income rises, but the opposite is also true.

There are a number of other kinds of annuities all offering a varying balance between your investment and your returns. With each option there is a risk and a reward and it will be up to you to decide which option best suits your lifestyle and the life you want to keep living. Annuities are a gamble, but a much less risky gamble than other investments that are available, and with all the options to choose from you can tailor your annuity to benefit you.

What are Enhanced Annuities?

If you are about to retire, or are at least at the stage when you are beginning to think about retiring, then you will quickly realise that you need to do everything in your power to make the most out of your pension. In most cases people have saved since their first job, and now that retirement is looming, there is a worry that what has been saved will not be enough. This is a common worry and for some, the answer to this quandary will be enhanced annuities.

With annuity rates at an all-time low, it is well worth investigating the possibility of effecting an enhanced annuity plan. This is a particular kind of annuity which offers a larger annuity for people with medical conditions that could limit their life span. As many as 70% of people are missing out on a higher annuity just because they don’t think about applying for enhanced annuities, and they work in the same way as a normal annuity.

Enhanced annuities and annuities in general might seem difficult to understand but really they are a bit of a gamble between you and the annuity provider, about how long you can live. When you decide to buy an annuity, enhanced annuities or otherwise, you use the lump sum of your pension in exchange for a regular and guaranteed income that you will receive for the rest of your life. The annuity is calculated on how long the annuity provider expects you to live, and this is why with an enhanced annuity you can receive a larger income.

So, how will you know if you are eligible for an enhanced annuity? If you are a smoker, or take regular prescription medication or have been hospitalised recently, then you should certainly apply for enhanced annuities. The sum you will receive will be determined by the current state of your health and how you live. Should you be overweight, have high cholesterol, or blood pressure then you can also receive about 7% more income than a healthy person.

There are a number of variables and it will be up to you to find out about them and then apply for enhanced annuities; if in fact, this is what you decide to do. Enhanced annuities can be extremely useful in getting you through the difficult patches, and so it is wise to take advantage of what is available as much as possible.

The Facts About Enhanced Annuities

Many people coming into their retirement take no advice regarding the different options that are available when taking the benefits from their pension schemes. It is often the easy option to take the income that is being offered by your ceding provider. You could be missing out on a considerable uplift in your income. By not seeking advice you could be missing out on an income sum 40% higher.

There are a number of specialist companies offering enhanced annuity rates based on your medical history and lifestyle including rates for those who smoke. The return is determined by actuaries assuming that certain medical conditions and lifestyle factors are likely to shorten your life expectations.

Your adviser would normally complete a common quotation form which would be distributed to the providers so that they are assessing you based on the same information. Enhanced rates with some providers are available for relatively minor conditions such as hypertension and high cholesterol so it important to disclose all medications that you may have been prescribed event if you feel that overall you are fairly fit and healthy. The questionnaire will also look at your height and weight to assess you BMI and question your intake of alcohol. You may feel that you are a moderate drinker but have you ever calculated the units you consume each week?

Visit http://www.drinkaware.co.uk/understand-your-drinking/unit-calculator to determine your average weekly total.

Many people when asked if they are in good health would answer yes – however if you drink excessive amounts of alcohol each week, you have a high BMI, or you have smoked ten or more manufactured cigarettes per day for ten years or more this could result in a substantially higher level of  annuity income being paid.

It is worth noting however that if your health is extremely poor and life expectancy is low, the purchase of an annuity may not be the best option. If you should die before crystallising your pension benefits then your fund will be payable to your beneficiaries without a tax liability providing death occurs before the age of 75. Where death occurs after the 75th birthday than a tax charge of 55% would be applicable. If you had crystallised your benefits to move into a drawdown arrangement then a 55% tax charge would also apply on death. If you die shortly after taking your benefits as an annuity then the income could die with you unless you have made provision in the form of a guarantee or spouse’s benefit.

Fact is 60% of People Could Qualify for Enhanced Life Annuities?

Many consumers approaching their retirement years, if not most of them, choose to at least look in to the possibility of investing in an annuity to help fund their lifestyle once they have stopped working. For those who do decide upon purchasing an annuity, there are several different options available. Not only are there a variety of different types of annuities but there are also several enhancements and add-ons that can be attached to certain annuities. For many consumers, the sheer number of options available can make choosing an annuity incredibly challenging. This is why each consumer should consult with an independent financial adviser. Many consumers are missing out on several enhancements available to them, including enhanced life annuities, because they do not have all of the information necessary to help them make educated decisions on how they will fund their retirement years.

Enhanced annuities allow consumers to receive higher levels of income if they have certain life threatening medical conditions. These enhanced annuities operate under the premise that the insurer can pay out higher levels of income to these consumers because it is assumed that the medical condition(s) in question will shorten the life expectancy of the consumer. This allows the consumer to pay out for a much shorter period of time.

There are several advantages to investing in an enhanced life annuities, the first of which is the higher payout. Depending on the medical or health condition, consumers can receive up to 40% more than they would with other annuity purchases. The enhanced life annuity is not subject to fluctuations based on the markets or other investment conditions. Consumers do not have to partake in any regular or ongoing medication conditions. Therefore, consumers do not have to worry about their income decreasing if their health condition improves. Knowing exactly how much money will be received and knowing that it is guaranteed and will never decrease allows the consumer to budget for their future. This budgeting can be for every day or every month expenses or it can be to anticipate a large life purchase or to pay down debt.

There are very few disadvantages to purchasing an enhanced life annuity. The first of these is that the consumer must explain their applicable medical and health conditions. Therefore, there is far more personal disclosure necessary to purchase an enhance life annuity than is the case for a standard annuity. The only other disadvantages associated with an enhanced life annuity are those that are associated with all annuities. These include that annuity payments may not keep up with the increased cost of living. It is also impossible for a consumer to vary their income payments once they have already agreed upon the annuity logistics. For any consumer who has a very short life expectancy, it may be better for them to invest in another form of retirement investment such as enhanced equity release, income drawdown, phased drawdown, and phased retirement. This would better equip the consumer to maximize all of their death benefits while receiving the highest level of income possible for their unique situation.

No matter what the choice by the consumer, consulting with an independent financial adviser should be the first action taken when deciding how to invest in retirement. With so many options available, many consumers are ill-equipped to make the right decision for their personal situation. Secondly, they may not even know all of the options available to them. That accounts for why so many consumers are inadvertently bypassing the possibility of qualifying for an enhanced annuity.

Which Retirement Annuity is Right for You?

Consumers have a variety of options available to them as they approach their retirement years. Not only do consumers have to choose between different investment strategies, but within those strategies lie another series of options available to the consumer. This is especially true when it comes to retirement annuities, a very popular option for many consumers. Retirement annuities offer several unique benefits to the consumer. However, there are several different annuities from which to choose, which can present a challenge to the consumer as they choose between their options. Each retirement annuity offers unique advantages to the consumer and with so many options there is one available for every unique consumer situation

Conventional Annuities

Conventional annuities work best for those consumers who are most focused on stability. This retirement annuity guarantees a level of income for the rest of the consumer’s life, regardless of any performance in the financial markets.

Variable Annuities

Variable annuities are a form of the retirement annuity that works best for those consumers interested in taking a risk. These income payments are typically lower than a conventional annuity but can pay out higher return as they are linked to investments in the financial markets.

Investment-linked Annuities

This retirement annuity is linked to specific underlying investments and can offer large payments to the consumer. Similar to variable annuities, this type of retirement annuity is a best fit for those consumers who are willing to take a risk with their retirement and pension savings.

Enhanced Annuities

Enhanced Annuities are a very unique kind of retirement annuity. This annuity is perfect for those consumers who are looking to take advantage of a higher annuity payment, based on their health or lifestyle status. This retirement annuity does require a specific eligibility requirement but can be worthwhile the assessment process for those who qualify, as payments are  usually increased since the insurer assumes that given the health condition, the consumer will have a shortened lifespan.

Fixed Term Annuities

Consumers who are looking for some more flexibility with their investment will benefit from a fixed term annuity. This retirement annuity offers a set income amount over the course of a predetermined period of time. This retirement annuity allows the consumer to budget for the period of time in which they are receiving payments, without having to worry about any impact from the financial markets, as the income is guaranteed for the predetermined time period.