Understanding your annuity income
We can arrange your income to fit your needs. You need to consider the following.
How often do you want to be paid?
You can be paid every year, every six months, every three months or every month. As a general rule, the longer you leave between payments the more you get. However you need to balance this with your own budgeting needs. You can be paid at the start (known as ‘in advance’) or end (‘in arrears’) of the chosen period. Most people choose monthly payments in arrears as this is how they received their salary. Again, you tend to get a slightly higher income if you choose to be paid in arrears instead of in advance because the annuity company passes on some of the additional interest or growth they earn on funds over that period.
Do you want a guaranteed period?
You can include a guaranteed period of up to 10 years (up to five years for protected rights). This means if you (and your partner) were to die within the guaranteed period, either a continuing income or lump sum could be paid to your estate which would represent the amount due to the end of the guaranteed period. The amounts received are taxed as income. The lump sum is only available if you have a five-year guarantee. Another option is to have the balance of your fund less income received so far (known as value protection) paid to your estate as a lump sum. This will be subject to tax at 55%.
How much income will be left to your partner if you die first?
This can be any percentage up to 100% of your income, but the most common options are 50% or 67%. You will need to talk this over with your partner, taking into account any pensions or other income available to you both. As a general rule the more income you leave to your partner, the lower your annuity. However, this will depend on their age and health.
Do you want your income to rise each year?
You can increase your income by a fixed amount (for example, 3% or 5% a year) or in line with inflation (retail prices index or RPI). Your starting income will be at a much lower amount than if you choose a level annuity. The general rule is that you will benefit most from an increasing annuity if you live for a very long time. We can help you investigate increasing your income.
Will my health or lifestyle affect the pension I receive?
When a provider works out an annuity, they are making an assumption about how long they think you will live. Your fund has to last until that point. An increasing number of providers (known as specialist or enhanced annuity providers) will now take health and lifestyle conditions (for example, smoking) into account and this can lead to a larger income (as they assume you will die sooner than someone who doesn’t smoke). The process is quite simple. You only need to fill in one medical questionnaire that we send to all enhanced annuity providers by secure email. These specialists offer you an income based upon your answers and we will always recommend the highest rate.
You will never be asked to have a medical examination although the provider may ask your doctor to fill in a questionnaire if your condition is particularly complicated.
