Tag Archives: Variable Annuity

Is a Variable Annuity worth the hassle?

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There are two main types of annuity – fixed annuity and Variable Annuity. Within these two types, there are different products, and different bells and whistles that can be added to different annuities to make them work best for you. The fact is that there are several different options when it comes to annuities – so it is extremely important to explore the open market and make a thoroughly researched decision. After all, an annuity, whether it is fixed or variable, cannot be changed or cancelled once purchased.

So let us look at the two main types of annuity. A fixed annuity is where the income you receive remains fixed and level throughout the term of the annuity. A fixed annuity is also known as a level annuity because the income remains level. The term of the annuity depends on the type of annuity it is. A lifelong fixed annuity will pay a fixed regular and guaranteed income for as long as you live.

A fixed term annuity will pay a fixed, regular, and guaranteed income for a fixed period of time. This is a pre-agreed period, and the annuity can continue to pay your partner or beneficiaries for the fixed period even if you die within the term of the annuity.

A variable annuity is one where the annuity income is not fixed and can vary through the term of the annuity. For instance, an investment linked annuity is a variable annuity, where the annuity is linked to an external investment such as in stocks or shares. The income you receive from this annuity depends on the performance of the investment – so it could be much higher than a conventional annuity if the investment performs well over time; but similarly, it could also be lower than a conventional annuity.

There is also the risk that you may end up losing the amount you invested in the annuity in the first place. This is a risk that is inherent in this type of investments. Other types of variable annuity include escalating annuity or inflation linked annuity.

An escalating annuity is where income increases by a fixed percentage each year. Although you receive a higher amount in the later stages of the annuity, the income during the outset is generally lower than a conventional annuity, all other things being equal. The risk with this type of annuity is that you really benefit from the increase only at a later stage, and have to compromise during the early stages of the annuity.

A variable annuity could work for you depending on your individual circumstances and your priorities. On the other hand, if you prefer to have a guaranteed fixed income, rather than worry about inflation indices and external investments, then a conventional level annuity may suit you best. It is important to note that there are risks associated with a variable annuity that do not exist with a simple level annuity. If you are not sure about which annuity may suit you, always consult a professional advisor who can give you impartial and expert advice on the matter.

Save Thousands a Year by Using the Open Market Option!

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The open market option is the right of the consumer to shop around before choosing an annuity. An annuity cannot be changed or cancelled once it has been bought – so it is immensely important to choose correctly the first time around! After all, an annuity can have an impact on your financial security for the rest of your life, and is therefore one of the most significant financial investments in life.

Research shows that a huge proportion of people are not aware of the open market option and that many people still continue to commit to the first offer made to them by their existing pension provider. This is not to say that the offer made by your pension provider will not be competitive. But according to some research, shopping around could help you get up to 20% more income than your existing provider, depending on which annuity and provider you choose, and an impaired or enhanced annuity could mean getting up to 46% more! Using the Open Market Option and shopping around for the best annuity scheme can therefore help you to save thousands of pounds over the year and a vastly significant amount of money over time.

There are many different types of annuities and choosing the most suitable annuity can seem a bit daunting. This is probably why some people simply choose to stick with their existing pension provider for an annuity. But thanks to all the information, resources and tools available today, understanding the annuity market and making an informed choice is not difficult at all.

There are many comparison and advice websites out there which can offer objective information about different types of annuities. You can learn about fixed annuity options, variable annuity options, as well as different bells and whistles that you can choose to add to an annuity. You can also use online tools like the pension calculator, to work out the maximum income you can get for your pension savings lump sum. These free tools and resources can really help you make the best of the open market option. Most insurance companies and annuity providers also offer lots of information on their websites, as well as offering free instant quotes based on your individual case.

Shopping around and using the open market option has never been easier or more convenient than it is today, thanks to the wealth of resources and information available. If you need more help and guidance when choosing, you can also consult an independent financial advisor. In fact, for certain types of annuities, such as investment linked or escalating annuities, it is essential to take independent advice from an expert. An IFA can help you understand your own needs, different products and how they work, and ultimately make a considered decision.

Get the lowdown on the Two Types of Annuities

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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.