It really doesn't have to be difficult
Shopping Around For A Higher Income - The Open Market Option
You can get more from a pension annuity if you shop around.To make the most of the Open Market Option it's important to speak to an Independent Financial Adviser (IFA) who'll explain the different annuity options available to you.
But what actually is a Pension Annuity?
An annuity is an arrangement where you make a lump-sum investment. From this investment you receive a guaranteed level of income. Most pension annuities are bought using funds held in money purchase pension schemes.In other words, an annuity converts a savings fund into income and that income will be paid to you for the rest of your life.
Examples of these types of "Compulsory Purchase Annuity" are conventional annuities, with profit annuities and unit linked, or third way annuities. Annuities that are purchased from savings, not from a pension scheme are referred to as Purchased Life Annuities and Immediate Vesting Annuities.
When your pension fund reaches maturity, your pension provider will advise you of the fund value, and general information about annuities including the level of annuity income you would receive.
You're then entitled to use your Open Market Option. This allows you to transfer the fund value to another annuity provider of your choice, thus enabling you to take advantage of a higher annuity income which may be available from a different provider.
You are normally entitled to take up to 25% of your pension fund as tax-free cash.
Types of Annuity
There are a wide range of options which can be selected when choosing an annuity scheme. Widely used pension annuity options include the following.Minimum Term
The income is guaranteed to be paid until the death of the annuity holder, but it can also be modified to include any of the following options:
• 5-year guarantee - annuity ceases at death of annuity holder, or after 5 years, whichever is the longer
• 10-year guarantee - annuity ceases at death of annuity holder, or after 10 years, whichever is the longer
• Joint life annuity - annuity ceases on the death of the second of two named annuity holders
Escalation
Your annuity can either be paid at a fixed level or you can include an escalation at 3%, 5%, or at the % RPI (annual increase in retail price index). Thus you can choose to compensate for inflationary effects on your annuity income. However, your initial income level will be reduced if you choose escalation. Spouse benefits
Your spouse, partner or financial dependants can be protected after your death by choosing one of the following options:
• Reduction to half benefit,
• reduction to two thirds benefit or
• full benefit
Thus your annuity is adjusted to the new level at the death of the annuity holder or at the end of the guarantee period (if selected), and continues until the death of your spouse, partner or financial dependants.
In other words, after your die, the annual income paid to your spouse, partner or financial dependants will be a proportion of the annual income you were getting just before your death. The proportion has to be chosen at the time when you take out your annuity. It can be, for example, 100%, 66% or 50% of your annuity at your time of death. A higher proportion will have a higher cost, therefore your annuity income will be lower.
Enhanced / Impaired Annuities
If you are in advanced years, have impaired health or a smoker you may be able to increase your annuity income.You may be able to enhance your income if you have a medical condition, no matter how small or insignificant you think it is. It is crucial that you tell our team of annuity specialists about it. You'll stand a better chance of a higher income for the rest of your life. This is also the case if you smoke 10 or more manufactured cigarettes or use 85mg of rolling tobacco daily.
Although you may be in relatively good health - some people think they have to suffer from a medical condition such as cancer, heart disease or stroke to receive extra income in retirement - the reality is often surprisingly different. A seemingly unimportant complaint may substantially boost your retirement income.
The reason why some annuities, called "Enhanced Annuities" or "Impaired Annuities", pay more than standard annuities is because those in better health tend to live longer on average than those in poor health. The annuity providers therefore have to pay out more over the healthier person's lifetime so their annual income is usually lower. This is why it is extremely important to report any ailment, no matter how insignificant you think it might be, to your provider. It may get you a higher rate of return.
Also, if you are a smoker, annuity providers factor in that you are likely to die sooner than the average non-smoker. They therefore will not be paying you your yearly income for as long. A presumed shorter lifespan means that being a smoker can increase the level of annual income you receive from your annuity.
Additionally, higher annuity rates are sometimes offered to people who have retired from certain occupations or people who live in certain parts of the country (sometimes referred to as annuities by postcode).
So, as a smoker you may already be entitled to receive a higher income, but also, depending on your age, you may receive further enhanced rates of up to 30 percent above standard level annuity rates, i.e. if normally you would receive £1,000 a year as a non-smoker, you might receive as much as £1,300 per annum as an older smoker.
For the first time in your life it's likely to actually pay to be older and in "bad" health!
In fact if you have one of nearly 1500 health conditions, such as being overweight, asthma, high blood pressure, heart problems etc., ensure you mention it to your annuity adviser.
It is estimated that up to 40% of the UK population could boost their annuity income with an "enhanced annuity".
What is a Purchased Life Annuity?
A purchased life annuity is an annuity purchased with your own funds, instead of from a money-purchase pension fund. It operates in the same way as a compulsory purchase annuity, but it has tax advantages.The entire pension which you receive from a compulsory purchase annuity is treated as taxable income in the same way as income from normal employment would be. However, when you buy a purchased life annuity that part of the annuity income, which is calculated as capital repayment to you, is free of tax. Only that part of your annuity income which is interest paid on your investment is taxable.
With similar annuity rates, the effect of this tax treatment of a purchased life annuity, for a basic rate tax payer, would be to increase net income by approximately £200 per month, from a £200,000 investment.
Your adviser can assist you in making decisions for such an investment and would be happy to provide comparative illustrations of such options.
Unsecured Pensions
You can choose an unsecured pension (sometimes known as income drawdown) as an alternative to an immediate annuity purchase.With this arrangement, you can first take your tax-free cash element, (it cannot be taken later), and the balance would therefore remain in your selected pension fund. There is an exception to this in the case of phased drawdown, whereby your tax free cash and income requirements can be combined.
You can now draw down a chosen amount of between 0 and 100% of the calculated single person's annuity value for the remaining fund. The residual fund can be converted into an annuity when you choose to end the Income Drawdown arrangement.
Income Drawdown is definitely not a suitable option for all. It's essential that any individual obtains the appropriate level of advice before committing to this course of action. Investments can go down as well as up and are not guaranteed.
How we Help You
We search the annuity providers' systems using specialist software aiming to ensure that we get you the highest pension annuity income possible.Discover
Put your feet up and let us take all the stress out of searching for an annuity.An Independent Financial Advisor (IFA) will compare top annuity providers to help you choose which one is the best for you.
It really is that simple!...
Uncover
Please complete the free short annuities comparison enquiry below and uncover the surprising difference between one annuity and another.The quotation service is FREE (how your broker gets paid) and there is absolutely no obligation.
Simply take just one minute to enter your details and you will be called back as soon as possible.
Here is a selection of your possible annuity providers...
