Monthly Archives: November 2011

Enhanced annuity case studies

Here we show some enhanced annuity case studies. An enhanced annuity will pay you a higher income throughout your retirement if you have certain medical or lifestyle conditions, such as smoking, for example. You could be offered up to 40% more income than someone in good health might be offered. If you have any medical or lifestyle conditions, you could be eligible for a substantially higher retirement income.

The following enhanced annuity case studies illustrate how clients with various medical or lifestyle conditions have achieved significantly higher incomes by shopping around at retirement, rather than simply taking the annuity on offer from their own pension company(ies).

Medical / lifestyle conditions Own pension company’s annuity quote Higher retirement income achieved by shopping around
Miss A, age 64, suffered from diabetes at retirement.

She had a pension pot of £57,089, of which £14,272 could be taken as tax free cash.

£2,327 per annum + £14,272 tax free cash. £2,824 per annum + £14,272 tax free cash.

That’s 22.4% more income

Mr. B, age 64, suffered from high blood pressure at retirement.

He had a pension pot of £64,884, of which £16,221 could be taken as tax free cash.

£2,405 per annum + £16,221 tax free cash. £2,958 per annum + £16,221 tax free cash.

That’s 23% more income

Mrs. C, age 65, suffered from high cholesterol at retirement.

She had a pension pot of £40,740, of which £10,185 could be taken as tax free cash.

£1,513 per annum + £10,185 tax free cash. £1,961 per annum + £10,185 tax free cash.

That’s 29.6% more income

Mr. D, age 65, suffered from high blood pressure and high cholesterol at retirement and he previously had cancer.

He had a pension pot of £148,581, of which £37,145 could be taken as tax free cash.

£6,060 per annum + £37,145 tax free cash. £7,680 per annum + £37,145 tax free cash.

That’s 26.4% more income


How to plan your retirement

A simple enough statement, how to plan your retirement, simple but very important. The first rule about planning your retirement is not to accept your current pension company’s first offer of an annuity income. As you approach your retirement the pension company that holds your pension fund will write to you to offer you an annuity. You’re under no obligation whatsoever to buy an annuity from your pension company. You can and should shop around for a better deal elsewhere, and I’m sure you’ll find it.

Second rule of how to plan your retirement. If you’re in poor health, please tell us all about it. With other financial products such as life insurance or medical insurance, health problems lead to higher costs in the way of higher premiums. The opposite is true when you buy an annuity for your retirement income. If you suffer from certain medical conditions, and there are many that can be considered – over 1,500 – you’re likely to be eligible for a higher level of retirement income because it’s expected you’ll have a shorter life expectancy. Regular smokers or those who are overweight are often also eligible for a higher retirement income.

Thirdly, take inflation into consideration when you’re planning your retirement income. With annual price rises (RPI) running at over 5% currently, more and more people are thinking about buying an annuity which pays an increasing income each and every year. This will help protect your future retirement income against inflation depending on the future rates of inflation, but you will be paid a lower starting income than you’d get from a level conventional annuity.

Fourthly, there are annuities for couples to consider. If you have a spouse or a partner, you should think seriously about taking out a joint-life annuity at retirement. In the event of your untimely death your spouse or partner would continue to receive annuity payments rather than the income simply being stopped. Not only does this represent sound financial sense, it could also earn you some crucial brownie points if you involve your spouse or partner in your important retirement planning. And that could be worth a lot.

Pros and cons of annuities

Let’s consider the pros and cons of annuities. An annuity is an investment that guarantees to pay you a secure guaranteed regular income for the rest of your life. There are many advantages, and some disadvantages, to buying an annuity for your retirement income. Looking at the advantages first: annuities are simple products and easy to understand; you can select a guaranteed fixed income that can be paid for a selected period of time, typically 5 or 10 years even if you die, and can increase each and every year if you require; you’ll receive a retirement income for the rest of your life, no matter how long you live; the size of your pension fund required to buy an annuity is generally much lower than you’d require for an income drawdown arrangement or phased retirement.

In addition, you can take a tax-free cash lump sum of up to 25% of the fund value when you set up the annuity; you don’t need to review an annuity on an ongoing regular basis; there isn’t any ongoing investment risk – you’re income is protected as you aren’t subject to any stockmarket fluctuations.

There are some disadvantages: annuities are inflexible products. It’s important to understand that once you purchase an annuity, you can’t usually change it; you can’t generally pass an annuity (without value protection built in from the outset) on to your beneficiaries as a lump sum when you die; the income you get from an annuity depends on annuity rates, which are currently very low; if you want to provide an annuity income for your spouse or partner on your premature death you must set this up when you purchase your annuity – so this can be wasted if you get divorced in later life or if your spouse or partner dies before you; and you won’t benefit from any ongoing investment growth or stockmarket rises if you choose an annuity for your retirement income.

As well as pros and cons of annuities, what about the history of annuities. Annuities are perhaps the oldest financial contracts around and their origins can be traced way back to Roman times, when policies were around called ‘annua’ which promised to pay an income for a fixed period, or possibly even for life in some cases. Annuities were actually available way back in the Middle Ages, the most famous of which were called ‘tontines’. These policies paid an income for life, and every year the payouts for those who died early were spread amongst the surviving policyholders, with the last surviving policyholder getting to receive the remaining capital. Thus these policies combined the concept of an insurance policy together with an element of gambling. During the 1700’s, several governments including those in England and Holland sold annuities instead of government bonds. Today annuities play an extremely important part in retirement planning, with the market worth billions of pounds and growing each and every year.

Higher annuity rates

Are you one of the many thousands of people who could qualify for higher annuity rates at retirement? Many people approaching retirement age simply don’t realise they could receive higher annuity rates if they suffer from ongoing health issues, or if their lifestyle might effect the income they get. Having certain health or lifestyle conditions could potentially reduce your life expectancy, and, if you have a reduced life expectancy there’s every chance you’ll get higher rates and a higher pension. Indeed, the risk that over-55s could be missing out on what could be potentially thousands of pounds of retirement income was highlighted in a recent study by MGM Advantage.

Seventy-two percent of this age group could be eligible for higher annuity rates, according to the study, but many people are unaware that their health or their lifestyle can affect their annuities. People approaching their retirement age are advised to have medical checks before retiring and buying an annuity for their retirement income. Enhanced annuity rates may also be available for regular smokers, people who are overweight, people who consume an above average amount of alcohol, and those who have worked for a long period in a particularly hazardous occupation, such as mining.

People who suffer from medical conditions such as high blood pressure, diabetes, heart conditions, kidney failure, various types of cancer, multiple sclerosis and chronic asthma, as well as many other conditions, could qualify for an impaired life annuity which can pay out significantly more retirement income. Enhanced and impaired life annuities pay substantially higher annuity rates because individuals with underlying medical conditions and more risky lifestyles have a shorter life expectancy than those individuals amongst us who are in good health and therefore the insurance company – the annuity provider – expects to pay the annuity income for a shorter period of time. The Pensions Advisory Service (PAS) offers an Annuity Planner on its informative website which is designed to help with the decision-making process involved when buying an annuity.

With 10% of adults concerned they will never be able to retire as planned on their current savings plan according to another recent study, the possibility of being eligible for a higher annuity income could make all the difference. A poll carried out by the Institute of Financial Planning (IFP) revealed that just 19% of adults are confident they are saving enough for the future, for their years in retirement, while 47% said they did not believe they have saved enough to fund a comfortable retirement for themselves.

Annuity rate

Do you know how your annuity rate is calculated? Do you know what factors are taken into account in working out how much retirement income you’ll get when you retire? The value of your annuity income is dependent on two key factors, the size of your hard earned pension fund and the annuity rate you’re offered by the insurance company (who is the annuity provider). The annuity rate is the determining factor used to convert your pension fund into retirement income, and in a formula – value of your pension fund x your annuity rate = your retirement income. Simple?

Just how is your annuity rate calculated? The value of your pension fund is simple enough to get hold of, just ask your pension company (though these days you might have to wait a while for an answer), but the annuity rate isn’t that simple. This rate is calculated by insurance company actuaries using numerous factors: your life expectancy (how long you’re expected to live in your retirement), prevailing interest rates, your age, your gender, your state of health, your lifestyle (i.e. do you smoke or drink, or are you overweight?), and where you live.

In broad terms, your annuity rate will be higher the older you are because the length of time you’re expected to live for will be less – you haven’t got as many years left to live as you get older. In the same way men get a higher rate than women of precisely the same age due to men having lower life expectancies than women – although this is changing shortly due to European intervention and same sex pricing. It’s what’s considered beyond age and gender that complicates matters somewhat. There are a number of other factors which can make a difference to your annuity rate. One factor that can reduce your initial annuity income, for example, is if you opt for an escalating income to help offset the effect of inflation on your future income.

To get the best annuity rate it’s important you disclose anything that might be considered relevant about your health or lifestyle. Also, if you buy an annuity when interest rates are higher and gilt yields are in your favour you’ll get a higher rate. If you suffer from a health condition, take prescription medication, if you’ve ever been hospitalised for a period for a medical condition, or if you’ve smoked regularly for ten years or more, you could get a higher income. This could also apply if you consume an above average amount of alcohol on a regular basis, if you live in what might be construed to be a less wealthy area of the UK, or if you’ve worked in a more hazardous occupation or occupations.

Annuity case studies

These annuity case studies show just how much extra retirement income certain individuals obtained, suffering from various medical or lifestyle conditions when they retired. All enquiries through this website are handled by The Retirement Adviser, award winning independent financial advisers, and part of LEBC. Here’s how some of their clients benefitted from using their specialist at-retirement service. First, Miss A, age 64, and how she got 22.4% more retirement income. Miss A suffers from diabetes, and had two pension plans with AEGON and Standard Life totalling £57,089 from which a tax-free cash lump sum of £14,272 was available. Her total offer from her current pension providers was £2,327 pa gross. The Retirement Adviser shopped around for Miss A and got her an increased retirement income of £2,824 pa gross, plus the tax-free cash – and that’s a healthy 22.4% more income.

Then we have Mr. B, age 64, and how he got 23% more retirement income. Mr. B suffers from high blood pressure, and had two pension plans with Clerical Medical and Friends Provident totalling £64,884 from which a tax-free cash lump sum of £16,221 was available. His total offer from his current pension providers was £2,405 pa gross. The Retirement Adviser shopped around for Mr. B and got him an increased income of £2,958 pa gross, plus the tax-free cash – and that’s 23% more retirement income.

The third of our annuity case studies concerns Mrs. C, age 65, and how she got 29.6% more retirement income. Mrs. C suffers from high cholesterol, and had one pension plan with Friends Life totalling £40,740 from which a tax-free cash lump sum of £10,185 was available. Her offer from her current pension provider was £1,513 pa gross. The Retirement Adviser shopped around for Mrs. C and got her an increased income of £1,961 pa gross, plus the tax-free cash – a staggering 29.6% more retirement income.

To read some more annuity case studies, please see the enhanced annuity page of this website. If you do suffer from ill health, be it mild or more serious you might get a pleasant surprise when you find out just how much extra retirement income might be available to you. Why don’t you give us a call and find out.

Annuity income on death

When you buy an annuity you need to consider what happens to the annuity income on death. What if you should die shortly after buying your annuity? What happens to the annuity income in those circumstances? Unless you have opted to purchase a joint life annuity your income will cease upon your death, whenever that occurs, even if you die shortly after buying the annuity. However, with a guarantee period, you can opt for the income to be guaranteed (typically for a period of 5 or 10 years). Should you die within the period selected the income will continue to be paid for the remaining period. For example, if you should die after two years after buying your annuity and you’ve chosen a 5 year guarantee period, your annuity income on death will continue to be paid for a further three years.

If you opt for a guaranteed period with a joint life annuity your annuity income will be paid for the remainder of the guaranteed period first, normally in accordance with what’s in your will. At the end of the selected guarantee period your spouse’s income will be paid at the level you have chosen, i.e. 50% or 66% (if you have chosen one).

Then there’s the question of how you might want to receive your income, never mind the annuity income on death issue. You annuity income payments can be in advance or in arrears. If in advance, you receive your first income payment straightaway. If in arrears, you wait until the end of the chosen payment period before you receive any payment. Your income can also be paid to you monthly, quarterly, half yearly or annually – it’s up to you. The more frequent your annuity payments the less you’ll receive – I guess that’s purely down to the costs of administering the payments.

Any options you might select for your annuity when you tailor it to meet with your needs and circumstances will affect the level of income you receive. The more options you select the lower your income will be. Our friendly advisers can guide you through your various options and help you make the right decisions when you buy your annuity.

Annuities options

If you buy an annuity to provide you with your important retirement income, there are several annuities options available to you, enabling you to set your annuity up to meet your particular requirements. Arranging your annuity is important. Not only do you need to choose the right type of annuity, you need to select the right options. However, at this juncture it’s worth pointing out that your retirement income requirements might be best served by an alternative retirement product, such as income drawdown, which can provide you with greater flexibility with your retirement planning.

Then you have your tax-free cash entitlement to consider. You can normally take up to 25% of the value of your pension fund as a tax-free cash lump sum, using the balance of your pension fund to provide your retirement income. The more tax-free cash you take at outset, the less there will be to provide you with a regular income. Incidently, tax-free cash is also known as Pension Commencement Lump Sum (PCLS) these days.

Annuities can pay an income in various ways. How do you wish to receive your income? There are a number of factors that need to be taken into account when arranging your income. If you’re single, you’ll buy a single life annuity, where the income will be paid throughout your life only. When you die the annuity income stops. You can, however, select a guarantee period for your annuity to provide some protection for your dependants should you die prematurely. If you’re married or you have a civil partner you ought to consider the merits of buying a joint life annuity. This will continue to pay an income to your spouse or partner if you should die first. Should you choose this annuities option, you can choose up to 100% of the income to continue being paid to your surviving spouse or civil partner after your death. Typically, incomes of 50% or 66% are more common.

Should you select a level or increasing annuity income? If you choose an income that remains level throughout, your income will not increase – naturally. Although the income you receive for the first few years of your retirement may be higher, you should bear in mind the effect inflation will have on your income as you enter the later stages of your retirement. You can choose an income that moves in line with the retail price index (RPI). This means that your income will keep track with inflation over time and therefore retain its buying power. More commonly, annuities are bought with a fixed percentage increase in income each year (typically 3% or 5%). This means your income could counter the effects of inflation to some degree, but only if inflation doesn’t rise too sharply.

Best annuity

If you do decide to buy an annuity for your retirement income it’s important you get the best annuity, one that is most suited to your particular needs and circumstances. There are various types of annuities to consider, as well as other types of retirement products. For example, you get substantially higher annuity rates if you have certain medical or lifestyle conditions. We’ll help you decide which retirement product is best suited to your circumstances, and, if it is an annuity, we’ll help you find the best annuity.

The whole issue of pensions and arranging your retirement income is crucial; you’re about to make one of the most important financial decisions of your life, and you do have choices to consider. You don’t have to take an annuity from your existing pension company. You have an open market option which gives you the right to shop around for the best annuity or the best alternative retirement product. If you do buy a lifetime annuity you’re stuck with it; you can’t change your mind once you’ve bought your annuity. The important decisions you make not only effect your income in retirement, but also your lifestyle in retirement, i.e. the things you’ll be able to afford to do – holidays, for example – so it’s important you’re in a position to make the right decisions about your retirement in the first place.

When you’re considering you’re retirement planning, if you’re in poor health, please tell us. There’s every chance we could get you significantly more retirement income than your current pension company will offer you. We’ll compare the market to find you the best annuity. Smokers or those who are overweight are often also likely to be eligible for a higher income. If you’re in good health when you buy an annuity we can get you the highest annuity rates available; but what if you were to fall ill in later life. You can’t change your annuity. However, if you buy a fixed term annuity now, you could alter the income you receive if your circumstances do change and you fall ill. Our aim is to help you understand what retirement products are available, explain how they can meet your particular needs and circumstances, and help you achieve a better retirement income.

To ensure you’re provided with good quality, independent, specialist retirement advice, we’ll pass your enquiry to The Retirement Adviser. They’re part of LEBC, a leading national firm of independent financial advisers, who have won awards for their retirement planning service – being awarded Best Annuity Planner 2011 in the Money Marketing awards for demonstrating a good track record in providing annuity planning advice to their clients.

Despite what we put to you, there’s every chance you’ll still buy an annuity, as, indeed, most people do. If you do, make sure it’s the best annuity. However, you don’t have to buy an annuity. You do have choices, and our job is to explain them clearly to you. There are products available which can offer you greater flexibility with your retirement planning, and it’s important you’re aware of them.

Annuity quotes

Annuity quotes vary greatly between different insurance companies – the annuity providers. To get the best annuity quotes it’s important you know what you’re looking for and provide accurate information about yourself and your circumstances. Accurate annuity quotes are based on many factors these days, and are somewhat bespoke: your age, gender, health, lifestyle, are you married, size of pension fund, the options you select, and more – such as where you live – are all taken into consideration. Selecting the right quotes will give you a true picture of your retirement income options. To do this properly research the different different types of annuities and other retirement products available, and the options you might require to meet your needs.

For example, don’t buy a conventional annuity if you have ill health or if you smoke regularly. You could benefit from an enhanced annuity which pays higher a higher retirement income in such circumstances. If you’re married don’t get an annuity quote on a single life basis – you should consider a joint life annuity first. If you’re a non-smoker and you’re in good health, you need annuity quotes based on standard annuity rates. If you smoke or have health problems, you need annuity quotes based on higher enhanced annuity rates. Remember, the quotes you get from us are likely to be significantly higher than the quote you have from your existing pension provider, who looks after your pension fund. It is also likely that your existing pension provider will not offer you the right options for your circumstances.

How should you take your annuity income? As an alternative to annuities paying a fixed income throughout retirement, there are annuities available with increases in payment each and every year (also known as an escalating income), such as by 3%, 5%, or in line with the Retail Prices Index (RPI). Taking an increasing income might help offset the effects of inflation on your future retirement income, but it will affect the initial income you are offered. If you opt for the 3% annual increase the starting income shown in your annuity quote would be around 25-30% lower than the figures in a level income quote, and, if you opt for the RPI annual increase, the starting income shown would be around 35% lower. The question then is, do you want to sacrifice your initial income?

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