Monthly Archives: December 2010

Annuity options; a joint life annuity if you’re married

There are various annuity options to protect your dependants and yourself. You can tailor your annuity to specifically match your requirements, as there are a range of options available. It is important that you consider adding these options, especially if you have any dependants. Whilst these options are important, there is a downside. There is a cost relating to each option you select which will directly effect your starting level of income. The more options you select for your annuity, the greater the effect on your income.

For example, selecting a joint life annuity in addition to a 3% escalating income will have a greater effect on your stsrting income than just selecting one option, albeit both are useful in their own way. You could select a guarantee period for your annuity income. Including a guarantee period means that your annuity payments will continue for the guarantee period, usually 5 or 10 years, even if you die within that time period. Remember, regardless of whether you include a guarantee period in your annuity or not, you will always receive your annuity income for the remainder of your life. So, if you’ve dependents to consider, whether a spouse or partner, you should consider a joint life annuity, or, perhaps, a guarantee period.

Pension annuities in 2011. Where next for annuity rates?

Pension annuity rates are very difficult to predict, and it’s hard to know if the trend will be upwards or downwards. The once quiet world of pension annuity rate pricing is changing enormously, as the various insurance companies try to manage the various factors that determine the annuity rates they offer to retirees. In addition, there are a number of new annuity products coming to the market. The Government’s QE policy is still in evidence and could yet have further effects on annuity rates.

What about annuity rates in 2011 and Europe? The continuing concerns about the weakness of various European economies and the Euro currency in general is adding further doubt to the resilience of the overall European debt market and is causing a surge in some debt yields. This isn’t good news but it could potentially lead to an increase in UK annuity rates if UK inflationary figures increase further. The news about the various economic issues might well tempt  some retirees to put off purchasing an annuity until annuity rates increase. However, this could be risky. Insurance companies are being forced to maintain far larger capital (or cash) reserves, possibly at the expense of annuity rates, due to new European financial legislation, coming into force in 2012. This alone could force annuity rates down as much as 20%.

The increasing development towards pension annuities rates being individually underwritten with various lifestyle issues being considered, is likely to continue and grow, which could lead to the annuity rates offered to healthy retirees possibly falling further. It’s estimated that 40% of retirees are entitled to higher annuity rates and therefore a much higher income, but that only a small number of retirees actually bother to apply. However, what this statistic does suggest is that the remaining 60% of retirees face a likely reduction in their income as a result.

Annuities and ill health; higher annuity rates

Ill health can lead to much higher annuity rates. Many insurance companies provide annuities that pay you higher annuity rates if you have a health problem that is likely to reduce your life expectancy somewhat. These annuity rates can be up to 45% higher than standard annuity rates. The more serious the medical conditions the higher the annuity rates. There are two types of annuities, an enhanced annuity and an impaired life annuity, that you could be eligible for if you suffer from ill health. 

An impaired life annuity is appropriate for people with more serious, possibly life-threatening medical conditions, and can lead to annuity rates being significantly higher. Examples of the annuity rates you might receive can be seen on the annuities and ill health page. There are over 1,500 conditions that can be considered for higher annuity rates. If you think you might be eligible you should contact one of our advisers and discuss your circumstances with him or her. Tell them as much as you can about yourself, your medical condition(s), and any prescription medication you might be taking. This can lead to your circumstances being assessed properly and to you getting the right annuity rates. We can assist you with a dedicated telephone underwriting service if you suffer from ill health, immediate annuity quotes, and also a 45 day quote guarantee period.

Why higher pension annuity rates?

Just how do you get higher annuity rates? How are they calculated? What factors are taken into consideration in assessing annuity rates? The value of your annuity income is dependent on two factors, the size of your hard earned pension fund and the annuity rate offered by the annuity provider selling you the annuity. The annuity rate is the factor used to convert your pension fund into pension income. For example: Value of pension fund x annuity rate = annuity income. The value of your pension fund is a simple enough factor to use, but the annuity rate is not, as it is dependent on numerous factors: how long you might live, interest rates, age, gender, your lifestyle, your state of health, and your postcode.

Good pension annuity rates for a healthy, non-smoking 65 year old male are around 6.5%. This means you could get £650 each and every year for each £10,000 of your pension fund. However, depending on your circumstances it might be possible to get a higher annuity rate, perhaps up to 9%. Getting £900 for each £10,000 of your pension fund is significantly better than getting £650, and it’s therefore crucial that you tell us all there is to know about your state of health and your lifestyle that might effect the annuity rates you’re ultimately offered.

Annuity rates are higher the older you are because your future life expectancy is actually less. In the same way men get higher annuity rates than women of the same age due to men having a lower life expectancy statistically. It’s what’s considered over and above this that complicates matters and leads to individual underwriting. There are a number of factors that can make a difference. The rate will be higher, resulting in an increased level of income, if you buy your annuity when interest rates and gilt yields are favourable; if you suffer from ill health; if you regularly take prescription medication; if you’ve ever been hospitalised for a period for a medical condition; if you smoke; if you consume an above average amount of alcohol regularly; if you live in a more deprived area of the country; if you work in a more hazardous occupation; and if you’re overweight. So, if you think you might be eligible for higher pension annuity rates, make sure you don’t miss out.

A joint life annuity or a guarantee period

When you retire, consider a joint life annuity or a guarantee period, as these can protect your dependants and yourself. You can tailor your annuity to suit your particular requirements, as there are a range of options available. It is important that you consider these various options, especially if you have any dependants. However, there is a cost relating to each payment option which will directly affect your initial level of income. The more options you select, naturally the greater the effect. For example, selecting a joint life annuity with a 3% increasing income will have a greater effect than only selecting one option.

You could select a guarantee period for your annuity payments. Including a guarantee period means annuity payments will continue for the balance of the guarantee period, generally 5 or 10 years, even if you die within that time. The shorter the guarantee period, the greater the initial annuity income to you. Consider this option if you should need to provide for financial dependants, but in which case, you should first consider a joint annuity if you have a spouse or partner. Selecting a 5 year guarantee period can reduce the starting annuity income by around 0.5%.

Why buy an annuity; with the best pension annuity rates

When you buy an annuity, you’re looking for the best pension annuity rates, but what else. Well, an annuity does provide you with a guaranteed income. It is an investment that guarantees to pay you a fixed regular income for the rest of your life, no matter how long you might actually live. In the UK, there are basically two different types of annuities you can buy; a compulsory purchase annuity and a purchased life annuity. All annuities share common characteristics in that they all pay a high level of guaranteed income; they turn a lump sum (pension fund or savings) into an ongoing stream of future income; they pay a regular income for as long as you are alive; when you die, annuity payments stop, unless you have chosen certain options.

Advantages of buying the best pension annuity: annuities are the only policy that guarantee a regular income for the rest of your life, no matter how long you might live; they provide a high level of guaranteed ongoing fixed income; they are simple to understand and provide you with security and peace of mind; they are based on the concept of mortality cross subsidy so they sort of insure you against outliving your assets. Annuities are one of the oldest financial contracts around. They were actually available in the Middle Ages, the most famous of which were known as ‘tontines’. These policies paid an income for life, and every year the payouts for those who died prematurely were shared amongst the survivors, with the last surviving policyholder getting the remaining capital.

Pension annuities; how much tax free cash can you get?

With pension annuities there is a limit as to how much tax free cash you can take. Tax-free cash is that proportion of your hard saved pension fund that you can elect to take as a lump sum, which is tax-free. It is now more commonly called the ‘pension commencement lump sum’ (PCLS) and can be taken at the time you take your pension benefits. Broadly speaking, the most tax-free cash sum that you can access is limited to a maximum of 25% of the value of your pension fund. Naturally, if you take any tax-free cash entitlement from your pension fund you will have less to purchase your pension annuity with. It is possible in some circumstances to get access to your tax free cash early without purchasing an annuity.

For details about pension annuities, speak to an adviser, call 0800 169 1256 today. All calls are free. Any quotes you request are free, and you’re under no obligation to take up our recommendations. You don’t pay any fees, as we get paid commission by an annuity provider only if you decide to buy your annuity through us. Annuity quotes will be compared from leading UK annuity providers to find you the most appropriate deal.

The FSA and getting the best pension annuity rates

The FSA (Financial Services Authority) is keen that you get the best pension annuity rates at retirement. It is an independent body set up by government to regulate the financial services industry generally and protect consumers. It states that the key messages for retirees are that you should explore your choices when you retire. Purchasing an annuity is an important step and you do have various choices – which are crucial because they affect how well-off you might be in your time in retirement. There are various different products and options to consider.

You should ensure you shop around for the best annuity rates. Contrary to popular understanding, you do not have to buy your pension annuity from the same insurance company you built your hard earned pension fund up with. There are also some key questions which you need to think about to help you choose the right annuity from the various types available: Is the annuity just for you or do you have a spouse or partner you want to provide for? If you suffer from ill health, is a high initial income your priority, such as from an enhanced annuity? Annuities are complex to many and it is crucial you fully understand all the options available to you. The FSA publish guidance to assist you, and they do offer a detailed and comprehensive website. Buying an annuity is an extremely important financial decision, probably one of the major decisions you’ll take in your life, and one that will affect how you live in retirement, and you owe it to yourself to try and ensure you end up with the right annuity.

Aviva annuities; Aviva annuity rates advert banned

A TV advert for Aviva annuity rates, in which the insurer claims it can provide 20% more retirement income for annuity customers, has been banned recently by the Advertising Standards Authority (ASA). The advert, with Paul Whitehouse, features a voiceover stating: “when you retire get up to 20% more income with Aviva”. However, four viewers of the advert challenged this claim as misleading before the advert finished its scheduled run. Aviva claims its annuity rates are 20% or more higher than those of its competitors in 22% of cases. They also say that the inclusion of the words ‘up to 20%’ in the advert makes it clear to customers that not all of its annuities will be 20% or more above those of competitors.

However, ASA’s assessment of the data found that although Aviva’s 648 comparisons of its own Aviva annuities with those of various competitors did show its deals to be better in 22% of cases, many of the scenarios Aviva tested was questionable. ASA therefore considered it was not necessarily safe to assume the percentage of annuity cases in which Aviva offered annuity rates of 20% or more corresponded to an equal percentage of real annuity customers. Additionally, ASA found in the majority of cases where Aviva’s annuity rates were better, they had only compared rates to three of the possible nine other open market option competitors. When rates were compared to all nine competitors, ASA found Aviva’s annuity incomes were 20% higher than its competitors in only 3% of cases considered. Therefore, the advert was concluded to be misleading, and must not be broadcast in its current form in the future.

Tom McPhail, head of research at Hargreaves Lansdown, stated that this case highlights the fact that a lot of consumer detriment actually occurs below the radar, and that it’s often difficult to obtain comprehensive data on annuity providers who do not provide quotes on the open market and it was here Aviva struggled to back up its claims. Yet the evidence available suggests in many cases shopping around using the open market option can deliver annuity rates substantially more than the 20% higher figure quoted by Aviva. He added that the only way to fix this problem properly is to make shopping around the default option.

Get the best pension annuity rates at retirement

Shopping around to get the best pension annuity rates at retirement is vital if you want to maximise your retirement income. Unfortunately, most people stick with the annuity offered by their current pension provider as they are unaware that there maybe be better deals available elsewhere. This costs thousands of pounds in missed income as once you have bought an annuity you cannot alter it or change your mind. You need to liase with your current pension provider; you should ask them if they have any other alternatives to their initial offer. Annuities have many variations, with many different options available to suit particular sets of circumstances.

It is up to you to be open about any medical or lifestyle issues if you’re to get the best annuity rates at retirement. Many people fail to be asked or fail to declare any medical conditions or lifestyle habits which may impact on their life expectancy, as, in turn, this effects the rates offered. Once you have spoken to a few annuity providers, gather all the information and then seek specialist advice over which is the best way to proceed with your annuity purchase. It’s crucial that you are able to consider all the options and pick the one which best suits your financial circumstances. You also need to consider the future; your financial circumstances will change during retirement, so make sure you pick an annuity that will support you with such changes.

Importantly you should utilise your open market option and shop around if you’re to get the best retirement annuity rates. Failing to shop around is the number one reason why some UK annuitants miss out on potential retirement income. You might discover that your current pension company is offering the best deal, but you won’t know if you don’t shop around, and you should always consider various annuity quotes from different providers before you make your annuity purchase. Following these important steps should help you avoid missing out on any vital retirement income.

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