Tag Archives: Annuity Income

Create Your Own Bespoke Annuity

An annuity is a way to turn pension savings into regular usable income for the rest of your life, or for a pre agreed period of time. Usually, an annuity is bought with a lump sum from the pension pot, and the size of the lump sum will determine how much income you could get back from the annuity. But annuity income also depends on a number of other factors including age, gender, location, health, the kind of annuity you choose, and of course current annuity rates.

Your pension provider is obligated to make an annuity offer to you; however, you have the right to explore the open market before making a choice. This is known as the open market option and your pension provider is required to make you aware of this path. Shopping around for an Annuity can help you understand the various types of annuities that are available from a multitude of annuity providers.

For instance, there are fixed annuities that pay a fixed income for the entire term of the annuity, and variable annuities such as escalating or investment linked annuities where the income you receive from the annuity varies over time due to several external factors. While a fixed, stable, guaranteed income may work for some people, others may like to have income that is linked to inflation or income that is linked to an external investment product.

An annuity once purchased cannot be changed or cancelled so it is vital to shop around and find an annuity that is the best match for your individual circumstances and needs. It is also important to be aware that many annuities have additional bells and whistles that can be added to the product. For instance, some annuities have the option of adding features whereby your income will continue to be paid to your partner or beneficiaries for a certain fixed period even after you are gone.

You could protect your income from being eroded by inflation by adding an escalating feature, where the annuity payments increase by a certain percentage each year or by investing in an inflation linked annuity, where the payments depend on the Retail Price Index. Naturally, adding extra bells and whistles such as these will generally impact payments in the initial stage – so that, for example, an escalating annuity will pay less than a conventional level annuity at the start of the annuity.

It is important to understand the details of how the annuity works before investing. The key to getting the perfect annuity is to use different tools and options to make the annuity work for you, and to strike the right balance between the level of income you need immediately, and the level of income you would ideally like to receive in the future.

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.