SU0-121 In its simplest terms, or at least as simple as anything in the finance world can be, annuity refers to a lifelong income supplied by a lender in exchange for a lump sum of cash or the individual in question's pension fund.
When to think about buying...
Until recently, it was possible for a person to purchase their annuity between the ages of 50 and 75, however 2010 saw the lower end of the scale increased to 55 years of age. Before taking out an annuity, it is possible for a pension holder to take up to 25% of their fund in the form a lump sum on retirement, entirely tax free.
Payment options...
Prior to opting for annuities or indeed deciding who would be the best provider to select, it is important to decide how the money would best be spread out over the payment period. For example, you could decide you would like the money paid out at the same rate every year for life, gradually increase by a fixed amount every year or the popular option of simply changing in line with the ever shifting rates of inflation. Of course, choosing a plan which increases every year will inherently result in a lower figure during the earlier years of the plan to
SU0-122 compensate for the later ones.
The investment option
Another possibility is to opt for an annuity program which is linked to investments or other funds which subsequently effect the annuity holder's income in conjunction with the performance of the investments. Quite simply, good investments make for higher payouts, bad investments decrease them.
The process of choosing which annuity is suitable should also bring into consideration whether or not a payment should be made to the holder's partner or significant other in the case of death. When choosing an annuity you must decide whether it should pay an income to your spouse or partner after your death. In this case, the monthly payments can be continued if wished or reduced accordingly.
SU0-123 There is also the additional option of selecting a joint annuity to include a partner from the onset, though this will usually result in greatly reduced income due to the fact that the policy will be required to pay out for a longer period.
How to go about buying...
Contrary to popular belief, it is not necessary to purchase an annuity from the same company which maintains control of your pension. Furthermore, it is never recommended that anybody do so without first checking out the competition. The truth is, finding a good annuity can provide as much as 25% higher returns than a bad one, therefore the reward for investing a little time in shopping around can be huge and really make a difference to subsequent quality of life. There is a regularly updated comparison service available online provided by the
Financial Service Authority which can certainly prove beneficial and save a lot of the legwork, further details of which can be found at; www.fsa.gov.uk/tables
Other considerations...
Should you have a history of ill health, or indeed come from a family with a background of ill health, or even if you are a long term smoker, it is possible to be considered for something called an impaired life annuity, which basically means that subsequent payouts are increased as a result of short life expectancy. This doesn't mean a candidate needs to have something of an unwritten death-sentence about them as a whole range of medical conditions both past and present can qualify a person for consideration.
In fact, recent studies have shown that up to 30% of annuity applicants could in fact be eligible for an impaired life annuity, many without even knowing it. Of course, anyone wishing to be considered as such must provide substantiated medical evidence and/or be tested at whatever length the provider requires.
Another overlooked consideration is that only those parties who have opted for a joint life policy are able to bequeath their annuity to their family, an option unavailable to basic single person policy holders.
A Helping Hand...
In all honesty, as with most matters in the financial world, it is strongly recommended to seek professional advice and assistance unless an applicant already possesses a detailed and comprehensive knowledge of the pension system and the options it affords. Once an annuity has been committed to, it generally cannot be modified or canceled, therefore the lifelong nature of the endeavor makes it one worthy of the most careful investigation. It is, after all, one of the biggest decisions you may face in your life.
When to think about buying...
Until recently, it was possible for a person to purchase their annuity between the ages of 50 and 75, however 2010 saw the lower end of the scale increased to 55 years of age. Before taking out an annuity, it is possible for a pension holder to take up to 25% of their fund in the form a lump sum on retirement, entirely tax free.
Payment options...
Prior to opting for annuities or indeed deciding who would be the best provider to select, it is important to decide how the money would best be spread out over the payment period. For example, you could decide you would like the money paid out at the same rate every year for life, gradually increase by a fixed amount every year or the popular option of simply changing in line with the ever shifting rates of inflation. Of course, choosing a plan which increases every year will inherently result in a lower figure during the earlier years of the plan to
SU0-122 compensate for the later ones.
The investment option
Another possibility is to opt for an annuity program which is linked to investments or other funds which subsequently effect the annuity holder's income in conjunction with the performance of the investments. Quite simply, good investments make for higher payouts, bad investments decrease them.
The process of choosing which annuity is suitable should also bring into consideration whether or not a payment should be made to the holder's partner or significant other in the case of death. When choosing an annuity you must decide whether it should pay an income to your spouse or partner after your death. In this case, the monthly payments can be continued if wished or reduced accordingly.
SU0-123 There is also the additional option of selecting a joint annuity to include a partner from the onset, though this will usually result in greatly reduced income due to the fact that the policy will be required to pay out for a longer period.
How to go about buying...
Contrary to popular belief, it is not necessary to purchase an annuity from the same company which maintains control of your pension. Furthermore, it is never recommended that anybody do so without first checking out the competition. The truth is, finding a good annuity can provide as much as 25% higher returns than a bad one, therefore the reward for investing a little time in shopping around can be huge and really make a difference to subsequent quality of life. There is a regularly updated comparison service available online provided by the
Financial Service Authority which can certainly prove beneficial and save a lot of the legwork, further details of which can be found at; www.fsa.gov.uk/tables
Other considerations...
Should you have a history of ill health, or indeed come from a family with a background of ill health, or even if you are a long term smoker, it is possible to be considered for something called an impaired life annuity, which basically means that subsequent payouts are increased as a result of short life expectancy. This doesn't mean a candidate needs to have something of an unwritten death-sentence about them as a whole range of medical conditions both past and present can qualify a person for consideration.
In fact, recent studies have shown that up to 30% of annuity applicants could in fact be eligible for an impaired life annuity, many without even knowing it. Of course, anyone wishing to be considered as such must provide substantiated medical evidence and/or be tested at whatever length the provider requires.
Another overlooked consideration is that only those parties who have opted for a joint life policy are able to bequeath their annuity to their family, an option unavailable to basic single person policy holders.
A Helping Hand...
In all honesty, as with most matters in the financial world, it is strongly recommended to seek professional advice and assistance unless an applicant already possesses a detailed and comprehensive knowledge of the pension system and the options it affords. Once an annuity has been committed to, it generally cannot be modified or canceled, therefore the lifelong nature of the endeavor makes it one worthy of the most careful investigation. It is, after all, one of the biggest decisions you may face in your life.
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