Fixed Term Annuities
Another option, if you feel you want slightly more flexibility in your retirement is a fixed term annuity. A fixed term annuity provides a secure, guaranteed income for a fixed period of time, no matter what happens with the stock market or with interest rates. The income is calculated by the annuity provider based on the details supplied at the application stage.
The annuity is fixed for a number of years up to a maximum age 90 to enable the options to be reconsidered in response to a change in health or lifestyle, for example.
Many people feel that they are not ready to make the decision to lock in to a lifetime annuity but do want to take the tax free lump sum and start receiving some or no retirement income.
Fixed term annuities are designed to offer people the ability to take a tax free lump sum, plus have the certainty of a guaranteed income without locking in to an annuity for life. At the end of the fixed term, a Guaranteed Maturity Amount is paid, that can be used to purchase another retirement product to match your needs at the time.
The Guaranteed Maturity amount is specified at the outset of the policy so you know how much pension will be returned to you at the end of the term. You can also choose to receive no income for the duration of the fixed term, therefore increasing the Guaranteed Maturity Amount offered.
The most common way to take retirement income from a pension plan is to use the fund to buy a conventional lifetime annuity. This provides a guaranteed payment at agreed intervals for the rest of your life. There are different types of annuity to suit your needs and circumstances. If you have more than one pension plan or scheme, you might get a better income by combining them, although you don’t have to use them all at the same time.
Annuity providers work out your guaranteed income by forecasting how long they think you will live. As a general rule, the more conditions you have that could reduce your life expectancy, the higher your income will be.
Providers estimate this by looking at a number of things, including where you live, your age, your gender and whether you smoke, along with any current or previous health issues including if you’re overweight or have high blood pressure because these are known, on average, to reduce life expectancy. While it isn’t an exact science, the annuity providers will make a best guess and pay you an amount of money according to how long they think you’ll live.
Remember – enhanced lifetime annuities offer a guaranteed income for as long as you live so it’s the annuity provider taking the risk, not you. If you have any of these conditions and you qualify, your income will be higher and never go down with these types of annuity.
Not all annuity providers offer enhanced annuity rates or smokers’ rates. This means that if you’re eligible for an enhanced rate annuity you may not get one from your current pension provider.
It’s very important that you tell us if there’s anything that could make you eligible for an enhanced annuity rate. As a guide, if you can answer yes to one or more of these three questions then you could qualify for a higher income:
- Do you smoke?
- Do you have any condition that is controlled with prescription medicine?
- Have you ever been in hospital?
If you’re not sure whether a condition you have or have had previously is relevant to one of the various types of annuity, please let us know. Something that you might not consider to be important could mean that you get a higher income than standard for the rest of your life!
Lifestyle and Medical
Certain lifestyle and medical conditions could mean that you qualify for a higher annuity income than standard. This is known as an enhanced annuity.
It is important you let us know about any conditions that could mean you’re eligible for an enhanced annuity rate. For example:
Heart conditions, cancer, neurological conditions and kidney or liver conditions: even if you are no longer suffering from these, could qualify for an enhanced rate.
This list doesn’t cover everything; there are hundreds of conditions that could qualify.
If you have or have previously had any condition, or if you take prescription medicine for something, even if you don’t consider it to be important, please let us know and well see if you qualify for one of the more specific types of annuity.
Not all annuity providers offer enhanced annuity rates. This means that if you’re eligible for one of these types of annuity, you might not get one from your current pension provider.
Purchase Life Annuities
A Purchase Life Annuity aims to provide you with a guaranteed income for life.
The funds to purchase this annuity must come from a private source, which can include your Pension Commencement Lump Sum.
Purchase Life Annuities help to supplement your standard pension and, because of the favourable tax treatment* they receive, enable you to maximise your income in retirement.
A Purchased Life Annuity comprises two elements – a capital element and an interest element. You will have to pay income tax at your personal rate but only on the interest element.
* Not all of our providers offer Purchase Life Annuities so for more information, contact one of our guidance officers on 0800 610 10 50.