You can tailor your annuity to suit your requirements, as there are a range of options available. It is important that you consider these options, especially if you have any dependants. Please contact us if you would like some assistance in selecting the right options for your particular circumstances.
Including a guarantee period means annuity payments will continue for the guarantee period, generally 5 or 10 years, even if you die within that time. (Remember, regardless of whether you include a guarantee period or not, you will always receive your annuity income for the whole of your life).
The shorter the guarantee period, the greater the initial pension to you. Consider this option if you need to provide for financial dependants, but in which case, you should first consider a joint life annuity if you have a spouse or partner.
Depending on the type of pension plan you have, if you opt for a guarantee you may also be able to select how it is paid. The different guarantee repayment options available are:
Income: The annuity payments continue until the end of the guarantee period.
Lump sum: An immediate lump sum single payment, in lieu of the payments of annuity income until the end of the guaranteed period. The lump sum may be lower than the sum of the remaining payments, allowing for a discount, to reflect it being paid immediately.
This option means that, should you die prematurely, an annuity income is paid to your surviving spouse or partner for the rest of his or her life. This type of annuity arrangement is also known as a ‘partner’s pension’, and can be added to most annuity types.
You can usually choose how much of your annuity income is to be paid to your spouse or partner when you die. This can be as high as 100%. Most couples, however, opt for between 1/3rd and 2/3rds of the annuitant’s income. The more you choose to be paid to your partner on your death, the lower your own income will be. See joint life annuity for further details.
As an alternative to an annuity that pays a fixed income throughout, you can choose an annuity that increases in payment each year (known as escalation), such as by 3%, 5%, or perhaps in line with Retail Prices Index (RPI). Whilst this might help offset the effects of ongoing inflation, it does reduce the initial income you receive. See inflation proof annuity for more information.
If you opt for the 3% increase per year your initial income would be around 25-30% lower than if you select a level income. If you opt for the RPI increase, your initial income would be around 35-40% lower. In both cases you would have a lot of catching up to do, perhaps up to 15 years in the case of a 3% increasing income.
An annuity protection lump sum death benefit is another method of protecting your annuity if you die before age 75. A lump sum equivalent to the amount used to buy your annuity, less any income you have received, will be paid to your estate or to your beneficiaries on death.
There will be a tax charge, and depending on the amount of money within the estate overall after the payment is made, there could be an inheritance tax charge.
your tax-free cash entitlement, taking your tax-free cash early, or you wish to see an annuity guide, please click through to the appropriate page.
Selecting some of these options will affect the level of income you receive from your annuity. The degree to which it is affected will depend on your individual circumstances.
As there are a number of options available it is always recommended that you seek financial advice before committing to any course of action to ensure that it is suitable for your particular situation.