Professional Annuity Advisers & Retirement Specialists

Annuities are something that you buy when you reach retirement age. When you retire, you use the pension fund you have accumulated over your working life along with any savings you might want to contribute to buy your annuity. The annuity allows you to receive an income for the rest of your life. Although there are other uses for annuities, this is by far the main reason for their purchase.

When you reach retirement age the first annuity quote you are likely to receive is that from your pension provider. You should not accept the first offer you receive from your pension provider as this is often a lower rate than what you will find should you compare the open market.

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“We Understand Choosing Your Annuity Can Be Confusing & At Times Stressful So We Have Broken Down The Likely Decisions You Will Need To Make When Searching For Your Annuity”

Step 1: Choose Your Annuity – Compulsory Purchase (Also Know As Pension Annuity) Or Purchased Life Annuity?

The compulsory purchase or pension annuity is bought using your pension and is used to provide your retirement income for as long as you live.

The purchased life annuity is an optional annuity that has to be purchased using your own funds and not those from your pension (apart from the 25% tax free lump sum).

This annuity is often used to “top up” your retirement income and carries numerous tax advantages so using your tax free lump sum from your pension to invest in this type of annuity could be something to discuss with your annuity adviser if you are looking to boost your retirement income. Another common use is to pay for something ongoing and specific such as grand children’s education costs.

Step 2: What Term To Take The Annuity Over?

For your main retirement income it will more than likely be for life but you are able to choose a specific term for the annuity as well. After the term has ended it would have to be reinvested so you need to speak to your adviser about this decision.

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Step 3: Do You Want Your Annuity On A Level Or Increasing Basis?

A level annuity will pay you at the same rate throughout the term. Although this annuity might see you start retirement with a higher income than other annuities, inflation could quickly erode the value of the money you receive so you need to think very carefully about this and discuss it with your adviser.

An increasing annuity will either increase by a fixed percentage each year, often 3% or 5% or it will be linked to the RPI (Retail Price Index). The RPI is a measure of inflation. Your adviser can discuss which option will be the best for you personally.

Step 4: Do You Want To Fix Or Investment Link Your Annuity?

A fixed annuity will technically pay the same amount throughout the term. We say technically because you can add the option to have it increase by a certain amount each year or every few years to try to keep pace with inflation. An example of this would be a 3% per year increase.

An investment linked or variable annuity carries more risk but also the potential for a higher return. There are different ways you can link your annuity to an investment:

• Investment Linked – Usually linked to gilts or bonds. Income can go up as well as down.

• With Profits – Linked to the providers investment fund. Usually have a minimum guaranteed income. Can increase through the addition of “bonuses” which will depend on the performance of the providers fund.

• Unit Linked – linked to an underlying fund of investments. Rarely a guaranteed minimum income. Usually choice of low, medium and high risk investment. Higher the risk the more likely your income is to fluctuate.

Make sure you discuss this fully with your annuity adviser.

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Step 5: Can You Get Enhanced Or Impaired Life Rates For Your Annuity?

Your lifestyle can affect your annuity rates. If you smoke or are overweight or even what area you live in and what job you have done for most of your working life will determine if you can get enhanced annuity rates. These are higher rates that will be paid if the annuity provider thinks you may have a shorter life expectancy than the “norm” for your age.

Also if you have any serious health concerns such as cancer, heart or kidney disease and even diabetes, then you may be eligible for impaired life annuity rates. This is basically a higher rate paid if you have any health concerns that the annuity provider thinks will shorten your life expectancy.

Your adviser will be able to tell you if you are eligible for a higher rate and also which provider is likely to offer the best rate for your circumstances.

Step 6: Single Or Joint Annuities?

A joint annuity will continue to be paid until the death of the second life. If one partner is healthy whereas the other smokes or has health issues then a joint annuity may allow you to have enhanced or impaired life rates. Your adviser will be able to tell you which option will be the most suitable.

Step 7: Guaranteed Period Or Not?

A guarantee period will mean that the annuity will continue to be paid in the event of your death, for the length of the guarantee. The guarantee period is usually 5-10 years. If you do not have a spouse then the money will be paid to your beneficiaries.

Step 8: Deferred Or Immediate?

If you take your annuity on an immediate basis then the income will start to be paid straight away. On a deferred basis the money will remain invested so will have the potential to grow the fund meaning the chance of a higher retirement income when you finally come round to drawing the income from the annuity.

Again your adviser will be able to tell you if this will be a suitable option.

Step 9: What Next?

You guessed it. . . Get advice from a professionally qualified adviser. Sigma Annuities were one of the first firms in the country to be awarded Chartered Financial Planner status and we are independent advisers who specialize in retirement planning and wealth management. Give one of our friendly advisers a call for a no obligation chat about your personal situation.

“Get Annuity Advice Using The Form On The Right Or Call Us On 0800 321 3741″