What type of Annuity

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The annuities for which we provide illustrations are Open Market Option annuities where the funds are coming from a pension scheme, or purchased life annuities where the fund are not pension related.

There are a number of options which can be selected for your annuity including a minimum term, spouses benefits and escalation in payment. As a general rule however, the more of these options you include on your annuity the lower the initial payment.

Minimum Term

All Open Market Option annuities will have a guarantee of being paid until the annuitants death. However, it is possible to include the following:

5 year guarantee - where the annuity ceases either on the death of the annuitant or 5 years which ever is the longer.

10 year guarantee - where the annuity ceases either on the death of the annuitant or 10 years which ever is the longer.

Joint life annuity - where the annuity ceases on the death of the second named annuitant.

Spouses Benefits

Your spouse can be protected by selecting the following options:

50% spouses benefit - where the income reduces by half on your death or at the end of any selected guarantee period and then continues until the death of your spouse.

2/3 Spouses benefit - where the income reduces by one third on your death or at the end of any selected guarantee period and then continues until the death of your spouse.

Full spouses benefit - where the income does not reduce on your death and continues until the death of your spouse. Selecting this option will result in a lower income than a 50% spouse’s benefit.

Escalation

Your annuity can either be paid level with no escalation in payment or can include escalation at a rate of 3% per annum, 5% per annum or be linked to the annual increase in the Retail Price Index.

Whilst the inclusion of a spouses benefit and/or escalation may appear attractive, remember that added benefits will reduce the initial annuity. The difference in income between a single life annuity with no escalation and a joint life annuity with 5% escalation can be almost double.

It is therefore important to use the options in the best way you can. If maximum initial income is important to you, you should consider a level income and if you are married we would suggest that you consider at least a 5 year guarantee with a 50% spouse’s pension.

If you cannot decide on the correct option, we offer advice on either a LIMITED ADVICE basis or a FULL ADVICE basis.

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