Annuity Purchase
Income for life ... and beyond?
The income from your annuity will be payable to you for life. However, you may also choose to guarantee the payment of your pension income for an agreed period, usually 5 or 10 years. This means that if you die during the guarantee period, your pension will continue to be paid to your estate until the guarantee period ends. For example, if you have a guarantee period of 10 years and you die after 5 years, your pension will continue to be paid to your estate for a further 5 years.
If you have a joint life pension and you die within the guarantee period and your dependant is still alive, you may choose for your dependant's pension to start immediately or after the end of the guarantee period.
To offset the impact of inflation you may choose to purchase an annuity that allows your pension income to keep pace with inflation up to a maximum annual increase of, currently, 5%.
Alternatively you may opt for a fixed increase between 0% and 8.5% throughout your retirement. However the initial payments will be less than that of a level pension and the higher the escalation the more it will reduce the initial payment.
Some companies also offer higher annuity rates for smokers, those with specified health issues and those who have worked in certain industries. This type of annuity is known as 'impaired life', 'impaired health' or, less brutally as 'enhanced'. You should make sure that you and your adviser include your health outlook in your calculations about which is the right annuity for you.
The Alternative to an Annuity
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