Pension Annuities
Otherwise known as a lifetime annuity, a pension annuity pays an investor a guaranteed income for life from the funds built-up in a pension plan. Their annuity provider will, in effect, buy a pension in return for paying a regular income, taxed in the same way as earnings.
The amount of income payable is dependent on age, health, pension size, economic factors, the type of annuity chosen, and the policy options selected. Once set-up however, it cannot be encashed or have any options within it changed.
Some annuity providers offer annuities which pay a higher-than-normal income if the applicant has a medical condition(s) which can affect their normal life expectancy; these are called impaired life annuities. Also, enhanced annuities may be available to those who smoke regularly or are overweight, or for those who have had certain occupations or have lived in certain parts of the country.
Annuity options include:
Being set-up in single-life or joint-life basis, where a single life policy pays out until a person’s death, whereas a joint-life policy pays out until the second life on it dies;
Regularity of income, such that a policyholder chooses at outset how often they want to receive their income payments from the annuity;
Payment timescales, such that income can be paid in advance or in arrears;
For annuities paid in arrears, they can be made with or without proportion, such that when the policyholder dies, their an annuity (if it was with proportion) would pay a proportionate amount to cover the period from the last payment until the date of death;
Payments being level, escalating or decreasing, such that level annuities pay the same amount of income year-on-year, escalating annuities pay less initially and more as time goes by, and decreasing annuities, the opposite;
Adding a guarantee period, which means that if the policyholder dies within the guaranteed period chosen, payments will continue for the balance of time remaining; and
Annuity protection lump sum death benefit, which allows for a return on death equal to the difference between the cost of annuity purchase and the gross income payments received.
To be eligible to purchase an annuity, you must be aged 55 minimum, or, if younger, meet ill-health conditions. Such products are designed primarily for those who want to receive a pension income without being invested in the stock market. As such, they are deemed lower risk than maintaining money in pensions, as the value will be unaffected given it has already been sold for the annuity.
For more information, click on the most suitable link:
Personal Pensions
Self-Invested Personal Pensions
Group Pensions
Small Self-Administered Schemes
Defined Benefit Transfers
Pension Drawdown
The MAP Investment Process
Ongoing Financial Reviews
The value of investments and the income from them can go down as well as up and you may get back less than the amount invested.