Annuity

An annuity is a contract between an insurance company and you under which the insurance company agrees to pay you a secure income for life in return for all or part of your pension fund.

Retirement income

After you’ve taken your tax-free cash entitlement from your pension fund (normally up to 25% of the value of the fund), the remainder of your fund can then be used to buy an annuity which pays you a secure retirement income for the rest of your life. You can normally choose when to start taking your retirement income from your pension at anytime from age 55.

Annuities are provided by insurance companies. The company you choose promises to pay you a guaranteed regular income in exchange for your pension fund, no matter how long you live.

Once you’ve set your annuity up, the basis of your annuity is fixed for life and offers you a secure retirement income. Your income will never run out. However, because the income you receive is fixed it is important to choose your options carefully. Once your annuity is set up you cannot change your mind – it can’t be altered.

Annuity income

The annuity income would normally be payable monthly, quarterly, half-yearly or annually.

The amount of the annuity income may stay the same throughout the years of payment or may have annual increases built in. These annual increases may be at a fixed rate, e.g. 3% per year, or the rate of annual increase may vary, e.g. in line with the annual change in the Retail Price Index (RPI).

The annuity income can be set up so that all or part of it reverts to your spouse or partner in the event of your premature death. Annuities can also be set up so that they are payable for a minimum period of time, typically 5 or 10 years, even if you should die before that period ends.

The value of the annuity income is dependent on two factors – the size of the pension fund and the annuity rate the insurance company offers you. The annuity rate is the factor used to convert the accumulated pension fund into an income, e.g. Value of pension fund x Annuity rate = Annuity income.

Annuity rates

There are two very important points to consider when buying an annuity:

1. You rarely have to stay with your current pension provider when you retire and often they will not offer you the best annuity rates.

2. Different insurance companies offer different annuity rates. The difference between the best and worst retirement incomes available can be significant.

You may think that buying an annuity from a well known insurance company is the right thing to do, but their reputation doesn’t pay your bills. If we can get you more retirement income, possibly from a company you might not know, it could well be right for you, and could result in you getting thousands of pounds more retirement income.

Annuity quotes

The annuity quotes you’ll be offered depend on various factors: the amount left in your pension fund after you’ve taken your tax-free cash entitlement; your health or lifestyle; your age; your gender; and whether you buy a single life or a joint life annuity.

In addition, the options you choose for your annuity can also effect the annuity quotes you’ll receive.

To obtain your free, no obligation annuity quotes you can enquire online, or call us free on 0800 0124 374. One quick free phone call from you can make all the difference. We’re here Monday to Friday, 9 am to 6 pm.