A conventional annuity is the simplest and most popular method of converting a pension contract into an income. It is a very simple product, and the basics are relatively easy to understand:- in simple terms, you hand over the proceeds of your pension fund to an insurance company, and they provide you with an income for life (annuity).
The income you receive is guaranteed (unless you opt for an investment linked annuity), and will be at least payable until the day you die. Under current rules, you can buy an annuity from age 55.
How much income your annuity provides is based on your age and whether you're a man or a woman, and the annuity options you select (see below for more details). The general rule of thumb is that a man will receive a bigger annuity than a woman, as a male's life expectancy is shorter. However, females tend to live longer, so a woman should receive the annuity payments for longer.
When you take the benefits from your pension there are a number of annuity options available, and this is perhaps where an annuity starts to get complicated. You have options such as including inflation proofing, so your income will increase each year, often called an escalating annuity. Or building in a spouse's pension so that, in the event of your death, the income continues for your spouse, or choosing a guarantee period so that it is guaranteed for a minimum period of time. The more of these "whistles and bells" you include, the lower the level of income from the annuity. Click here to find out more about these annuity options.
Different insurance companies have different views on life expectancy, and the types of business they want to attract. The annuity rates they offer can vary widely from one company to another. So, it always pays to shop around for the best annuity deal for your circumstances, and this is called the "Open Market Option". Your pension company will probably offer you an annuity, but in most instances, this can be bettered by shopping around.
If you are shopping around for an annuity, it is important to remember that there are some companies that base the annuity rate they will offer on an individual's own medical circumstances and life expectancy. So if you have, or have had in the past, problems with your health then it is worth looking at enhanced/impaired life annuities or smoker annuities if you smoke. Please note enhanced/impaired life annuities don't just apply to serious conditions such as cancer or heart problems. Even relatively minor conditions (especially if there is more than one) can qualify you for an enhanced annuity. Follow the links to find out more about enhanced/impaired life annuities or smoker annuities.
If you are considering taking out an annuity, then call now to speak to an independent pension specialist on 0800 011 2713 , without obligation or contact us online, or request an annuity quote. We're totally independent, you can be sure that you will get the best annuity from the most suitable provider.
If you can't find the information you're looking for on the website, or you want to know more or have a question, or just want to chat through some details about your pension then please feel free to contact us, without obligation. Either contact us online or call 0800 011 2713.