Secured pension: Lifetime Annuity
A lifetime annuity converts the sum of money from your pension fund into pension income, which is taxed as earned income.
Important information regarding lifetime annuities:
- The level of income you receive will either be fixed at outset or escalate as selected and will depend upon annuity rates available at that time.
- Your pension can be guaranteed for a certain period of time even if death occurs, this is usually 5 or 10 years i.e. payment of the annuity will be made in full for these periods, even if you die earlier.
- Your spouse can enjoy a guaranteed level of gross income in the event of your death.
- Purchase of dependant’s benefits has to be made at outset.
- Annuities benefit from mortality drag. This means that the annuity rates offered by the insurance companies take into account the fact that some people will live longer than others, therefore those people that die early subsidise the annuity rates for those who liver longer.
- Annuity rates can also be affected by your health, age, and sex.
Examples of annuities available:
- Fixed annuitieswill pay a pension at a fixed rate which will either remain level throughout the life of an annuitant or rise at a pre-determined rate (e.g. 3% compound).
- Another option, which is relatively new to the market, is fixed term annuitieswritten under the Unsecured Pensions rules. There are currently very few providers of this type of plan.
- Provides a regular income between nil and the maximum allowable by legislation. Fixed term annuities guarantee that your income is secure, subject to Government income limits not being exceeded.
- The Plans guarantee to provide a predetermined maturity amount at the end of the Plan term. Depending on your age at that time, this amount can either be used to buy a lifetime annuity from an annuity provider of your choice, or a further post-retirement pension product.
- Should you so choose, the Plans guarantee that your investment will not die with you. Your spouse/civil partner can receive an income or lump sum or it may be possible to provide a lump sum to a nominated beneficiary.
- You will benefit from the ability to customise your own fixed term annuity depending on your personal needs and aspirations.
- You may benefit from the opportunity potentially to obtain a higher income in the future if your health has worsened during the term of your fixed term annuity. At the end of the plan term, annuity rates may be lower than at outset.
- The fixed term annuity cannot accept protected rights.
- The amount of income receivable from the retirement income product that you can purchase with the Guaranteed Maturity Amount at the end of the fixed term annuity is not guaranteed and will be based on the market conditions prevailing at that time, principally interest rates, your health, your age and the benefits that you select. The income you receive after the maturity date could be lower than you would get from a lifetime annuity purchased now.
- If your health deteriorates during the term of the fixed term annuity you may qualify for enhanced annuity rates on health grounds at the end of the term when you purchase your next retirement income product with the maturity amount.
- Enhanced or Impaired Annuitieswill offer higher rates for individuals with particular medical conditions or lifestyles that shorten their life expectancy i.e. cancer, heart disease and smokers.
- Index Linked Annuitieswill provide a pension guaranteed to rise in line with movements in the Retail Price Index (RPI).
- Investment Linked Annuitieswill pay a pension dependant on the investment performance of a With Profits or Unit Linked fund.
It is possible to link the income that you receive to the performance of an underlying investment, whether it be a With-Profits fund or alternative funds invested in for example, Fixed Interest, UK Equities or Global Equities.