In the last 6 weeks before retirement your existing pension provider will offer you an annuity and probably try to get you to sign for one of their options. The Government recommend that you take a look at the rest of the market to see if you are getting good value for money this is called taking an Open Market Option. Your existing provider will usually only offer you the most basic of annuities, without consideration of any of your circumstances any one of which could mean a higher annuity for you for the rest of your life and your parner after your death.
Annuity Options
Single Life Annuity
If you have no dependents then this option could be your best bet to give you the maximum income
Joint Life Annuity
Most couples want to protect their spouse in the event of them dying first. This done by selecting at the outset a proportion of annuity to continue until second death usually half, two thirds or 100%
Level Annuity
This option is the least expensive or chepest type of annuity especially if taken on a single life basis i.e. no partner or spouses pension left after your death. this type of pension can look attractive initially but 9 times out of 10 doesn't do all the things that you expect from your pension.
Increasing/ Rising Annuity
If you select a rising annuity it will usually rise annually on the annuity's anniversary. rises can bet anything from 1% per year upto 6% in the current climate or the rise can be linked the one of the price indexes either RPI (Retail Price Index) or LPI (Limited Price Index) this can protect against inflation.
Different Types of Annuity
Enhanced Annuities, Lifestyling or Postcode Annuity
Some annuity providers have complete postcode analysis of the United Kingdom and will offer higher annuities for different postcode areas other providers may offer higer annuities based on previous employment or job.
Smoker Annuity
This is usually the only time in you life where you can get some benefit from being a smoker. You usually have to have been a smoker for at least 10 years and smoked at least 10 cigarettes per day or the equivalent to qualify for the higher annuity rates.
Impaired Life Annuity
Rates for Impaired Life Annuities can be considerably higher than ordinary annuities. Annuity companies provide these higher rates based on diagnosis of certain diseases or medical conditions which tend to leave the annuitant with a reduced life expectancy.
Short Term Annuity
This type of annuity is designed for people that don't want to make a final decision about their annuity choice and so choose a short term annuity from 3 to 5 years this means that should their health deteriorate in the future they would be able to take advantage of an impaired life annuity thus giving them a higher income and of course they would be 3 or 5 years older again improving the annuity rates.
With Profits Annuity
A With-Profits Pension Annuity pays you a regular income for the rest of your life, primarily based on the performance of our With-Profits Fund. It is invested in the stock market by a team of fund managers, and offers the potential for income growth over the medium to long-term as a result of bonuses added to your income. However, these are not guaranteed. When your annuity starts you choose an anticipated future bonus rate of between 0% and 5% - referred to as the anticipated bonus rate or ABR (Restrictions apply to Protected rights funds). This determines your starting income and affects the amount you'll receive each year. If you select the maximum ABR of 5%, your starting income will be the highest but there is a greater risk of a reduction in income in future years. However if you select the minimum ABR of 0%, then your starting income will be lowest but all regular bonuses awarded will result in an increase to the guaranteed part of your income each year. So depending on your point of veiw you can adjust the level of income to suit your needs or risk profile or outlook.
Gauranteed Annuity
This option for an annuity is reletively inexpensive and usually for 5 or 10 years and means "for the term selected and your life thereafter" or gauranteed for the period and until your subsequent death. The purpose of this is to make sure that you of your beneficiaries get some value from the contract in the event that you die shortly after taking your annuity, at least some of the value will be released.
Capital Protected Annuity
This is a variation on the gauranteed annuity above and a more expensive one, it pays out a lumpsum equivalent to the original purchase price less any income payments already made.
Aside from the ordinary option from your existing provider. The most common type of annuity is the impaired life annuity or enhanced annuity, this type of annuity is dependent on your health and is based on the assumptions about your life expectancy, and can make a big difference up to 40% more income for the rest of your days. If you are a smoker this is probably the one time that you have an advantage and will increase the amount of your annuity. Some providers have analysed the motality rates for the whole of the United Kingdom and offer enhanced annuities based on your postcode and previous employment.
Open Market Option
This can be one of the easiest things you can do to improve your income in when you retire, if you have a fund or total of funds of £20,000 you can ask for a free quote by simply ringing 0800 567 0018