Choosing the right Annuity Options is very important. You can tailor your annuity to fit your personal circumstances with a number of options. The annual income you will be paid, as a rule, decreases as you add more Annuity Options.
Tax Free Cash Lump Sum
The tax free cash lump sum can be up to 25% of the value of your pension fund(s) and it can be used for whatever purpose you choose. The rest of your fund is then used to buy an annuity and the income from this is taxable at your normal rate.
Single or Joint Life Annuity
If you are married, in a civil partnership, or have someone who is financially dependent on you, you can choose to have your retirement income continue to them after your death either at the same level or at a reduced level. If you choose to do this, it is known as a Joint Life Annuity.
If you choose one of these Annuity Options, should you die first, your spouse, partner or dependent will continue to receive an income for the rest of their life (unless your dependent is a child in which case they will receive the income until they reach a specified age).
Lifetime annuities guarantee to pay you a regular income until you die. You can choose to guarantee that income payments are paid for a minimum period of time, up to a maximum of 10 years from the date you set up the annuity. This means that if you die before the end of the guarantee period the income will continue to be paid to your estate until the end of it.
There are some Annuity Options offered by some of the annuity providers that guarantees to return the difference between what you paid to buy the annuity and the actual income you are paid up to your date of death.
If you choose Value Protection, the difference between the total income you have received from your annuity when you die and the purchase price when you bought it will be paid to your nominated beneficiary, minus a 55% charge for tax.
Inflation generally means the cost of living rises over time. This means the buying power of a fixed income will reduce over time. Opting to have escalation Annuity Options on your annuity can reduce the effects of inflation.
Level Income (no increase) – You can choose to have the same annual income for the rest of your life.
Fixed escalation – You can choose to have your annual income increase by a fixed percentage of up to 8.5% each year.
RPI escalation – You can choose to have an annuity that moves in line with the Retail Price Index (RPI) and as such keeps track with inflation.
Receiving Your Income
There are four payment Annuity Options – monthly, quarterly, half-yearly or yearly.
Timing of Your Payments
You can choose to have your payments made in advance or in arrears. In advance means your first payment will be made immediately once your annuity starts and in arrears means that you will receive your first payment at the end of your chosen payment period.
If you choose to have your payments in arrears, you can choose to have them made with proportion or without proportion.
With proportion means that if you die between two payment dates, a payment will be made after your death which will be a proportional amount of your annuity from the date of your last payment to the date of your death.
Without proportion means that no further payment will be made after your death and the payment made immediately before your death will be considered the last.