What options do I have for an annuity?
There are a number of options available when taking out an annuity, and how you combine them is up to you and what needs you have.
The main options are:
Level Annuity – An annuity without inflation proofing (a level or fixed annuity) will provide a higher level of initial income but provide no protection against inflation
Inflation Linked Annuity – an inflation proofed, or escalating, annuity will increase each year either by a fixed amount or by the rate of inflation.
Single Life Annuity – this would pay out for only the person who purchaed the annuity and would stop on the death of that person (unless a guarantee period was taken out).
Joint Life Annuity– a joint life annuity means building in a pension to continue for your spouse in the event of your death. This can be anything up to 100% (so what was paid to the person who bought it, will continue after their death).
Guarantee Period – this ensures that the annuity is paid for a minimum number of years, normally 5 or 10 years. How it works; so if you opt for a 10 year guarantee and die after two years, there would be eight more years worth of payments. Very often there is little difference between a five and a ten year guarantee. New rules from April 2015 meant that there will be no maximum, with some providers offering 30 year guarantee periods.
Value Protection – This option permits a return of any unused fund in the event of death. So, it is money paid in (to buy the annuity), minus income paid out – a “money back guarantee”.
Payment Frequency – you can opt for an annuity to be paid monthly, quarterly, half-yearly or annually. Once selected, you can not change it at a later date.
Advance/Arrears – you can opt for the income to be paid as soon as the contract starts by taking the payment in advance, or taking it in arrears, which would mean waiting to receive the first payment. Having the payment payable in arrears will mean a slightly higher income.
The amount you get from the annuity depends on what, and how many, features you build in. An inflation proofed, 100% joint life annuity with a 30 year guarantee period isn’t going to pay as much as a level, single life with no guarantee.
Whatever options you’re considering, it is important to remember to shop around for the best annuity for your circumstances and use your open market option to get the best rate for you. Remember, you don’t have to take out an annuity with the same company you have your pension with.
These are the main options for a conventional annuity. However, there are other types that may be more suitable for you. These include a fixed term annuities or an enhanced life annuity.
Contact us today to discuss the best tailor made option for you.