Do you have a Personal Pension Plan or a lump sum that you wish to use to purchase an Annuity. There are many different versions of an annuity available.
This section assumes that you are in bad health or you are a smoker or both and wish to look at purchasing a Lifetime Annuity. An Annuity was the only choice available until the advent of Pension Drawdown Plans and the subsequent Pension Freedoms recently introduced. Annuities still have their place for people who are risk adverse or simply want absolute guarantees of income with no risk. If you have multiple pension plans you do not need to use them all to buy an annuity if you prefer some guarantees and some flexibility then an Annuity and a Flexi Access Drawdown combination may be suited. This is all based on individual requirements.
How does this all work?
- What is an Enhanced Annuity? Well this plan takes into lifestyle matters such as smoking for example and as such gives a slightly better annuity rate than an annuity for a non smoker for example.
- What is an Impaired Annuity? Well this is more specialist and takes into account far more medical conditions than an enhanced annuity and is far more specialist and quoted specifically for you so the only way you will get an impaired annuity quote is by applying for one. It may also be a consideration to look at a Flexi Drawdown policy as a comparison because if you receive good impaired terms your health is a considered issue and an annuity will tie up your money which death benefits under a flexi drawdown are more beneficial for anyone you may wish to inherit.
- Your Pension policy is used to buy an Annuity, which is a guaranteed income for life.
- If funds are from a Personal Pension you can have 25% as Tax Free Cash and the remaining 75% of the fund value used to buy the Annuity. If you do not want the Tax free Cash then you can opt out of that and use 100% of the fund to purchase the Annuity. The benefit is that you will receive a higher income, the pitfall being more tax payable so in general people more often than not take the Tax Free Cash. (Note this is a one off decision and there is no changing it afterwards). (if it is non pension money then there is no Tax free Cash available)
- If you are in good health but your spouse is not then it may also be worth investigating Impaired or enhanced annuity purchase. Certainly if you are a smoker then you need to look at enhanced annuity purchase.
- All insurance companies tend to quote a Level income that dies (stops) when you do with no spouses benefits as this gives the highest figure.
- You are not obliged to use the insurance company with whom your pension policy is with although we would always get a quote for them. Some insurance companies like having their pension business but do not want the ongoing annuity business and as such give poor quotes so one has to shop around for the best deal.
- With an Annuity you have to decide what you want at the outset and it cannot be changed once it has been started. The more options you buy the less you will get.
- For a married couple a typical Annuity would be Level with a 50% Spouses Benefit and a 5 or 10 year guarantee. Now this will pay less than a level Annuity that dies when you do because you are asking for more benefits. So this one will pay a guaranteed amount for the 5 or 10 year guarantee depending upon what you have chosen. This Guarantee means that if you are alive for the whole 5 or 10 years it will pay as normal and beyond for the rest of your life. If you live beyond the guarantee then it will no longer have that benefit. The Guarantee means that if you died on day one or any time during the Guarantee Period the full amount will be paid until the end of the guarantee period. If you have a 50% Spouses benefit then your spouse will get 50% of your annuity income after you die for the rest of her life. So if you died in the guarantee period your spouse will continue to receive the full annuity income until the end of the guarantee period and then it will reduce by 50%. Your Spouse can now upon your death within the Guarantee Period surrender the income as a cash lump sum from the remainder of the guarantee period as long as it is no more than £30,000 and receive the 50% spouses payment right away which may well be more beneficial to your spouse. If, however you died after the guarantee period then your spouse will then receive 50% of the annuity income for the rest of her life right away. if your spouse pre deceases you then on your death if in the guarantee period then full payment will continue to your estate until the end of the guarantee then stop. If your death is after the guarantee period and your spouse has pre deceased you then payments will cease.
- Couples often look at an increasing Annuity option but are put off because of the impact it has on the initial income available.
- As a starting point a level single life annuity with no guarantee period that dies when you do (meaning stops paying an income) will get you the best deal. The more additions you make the greater the cost so the less you get for your money. Therefore if you include a 10 year guarantee with overlap, a 50% Spouses Pension, an increasing by RPI element the difference that you will receive as an income at outset will be significantly different, so careful planning is required.
- These options are all available for enhanced and impaired annuity purchase too.
- Company Scheme Transfer. The reason we mention this is because if you are single then you may get a better deal transferring out of a company scheme which is funded to provide spouses benefits. Unless we look at all the figures then you will not know what is best for you.
- So how do you get going? Well we need to make enquiries about your current pension or pension policies and obtain company quotes and based on the values we can obtain comparison quotes for you.
- Complete our contact form below and we will be in touch