Annuities
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Annuities Mini Guide here
When you draw benefits from your pension fund, in most
cases, (after tax-free cash is taken), an annuity is purchased. The
annuity is simply a contract with the provider (usually an insurance
company) to supply you with a clearly defined income for the rest of your
life.
Your pension provider will usually offer you annuity
terms and also mention you have the open market option. This merely
means you may take your business elsewhere and purchase your annuity from
anyone you choose - you do not have to accept your pension company's
offer.
Amazingly, although in many cases the annuity offered by
the company where you built up your pension fund is not the best
available, the great majority of people simply buy their annuity with
them.
Your annuity purchase is a once and for all decision.
Once done, it cannot be reversed. The
worst offer on the market, compared to the best, may differ by as much as
30%!. It is your lifetime income you are dealing with, and hence it is
worth taking a little time over the decision.
Bates pension specialists have an excellent
knowledge of the annuities market place, and can help you obtain the most
appropriate annuity at the most competitive rate. In most cases, by taking our advice
they have helped clients improve upon the benefits offered by their
existing pension provider.
Features of Annuities:
You may build-in various features to your annuity, all
of which have a cost and affect the annuity income figure. The
"standard" annuity pays a fixed income, to the purchaser, for
life. If you die early in the term, the annuity provider keeps the capital
left over. Additions to the basic annuity include any combination of:
Spouse pension / Joint Life Annuity
The spouse will receive the annuity proceeds for her
lifetime after the death of the first annuitant. This may be 100% of the
original annuity or a lesser percentage. May also be termed a Joint Life
annuity.
Guarantee
The annuity is paid for a set number of years (usually
five or ten) regardless of the death of the annuitant. If the annuitant
dies during this period, the estate receives the income.
Increasing annuity
The sum paid escalates over time, e.g. increasing by
inflation. Often however, the drop in income in the initial years caused
by this option is not compensated by the higher income in later years
until much later - twelve or thirteen years is common.
Invested annuities
More complex than simple annuities, these will have a
minimum guaranteed income figure, but otherwise the annuity received or
the annuity fund value may fluctuate each year. Typical investments are
with-profits or unit-linked. You should seek advice if contemplating this
product.
Enhanced (Impaired Health) annuity
If you have a recorded medical condition which may
reduce the anticipated number of years remaining life, an enhanced annuity will provide a greater income figure. This is because the
insurance company sees the annuitant as a lesser risk of receiving the
benefits over the long-term.
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