FAQ

What is an annuity?

An annuity is product that pays a secure income normally for the rest of your life and potentially your spouse or financial dependant.

During your working life your pension builds up a value often expressed as the current value on your pension paperwork. An annuity is the regular income that is bought with your pension fund when you choose to take benefits.

Once set up, the annuity is normally fixed and offers a secure income for the rest of the life of the annuitant(s).

Annuities are also known as: ‘compulsory purchase annuities’ or ‘secured pensions’.

Do I have to take a tax free lump sum?

No you do not although it is your chance to take some of the capital from your pension and it is tax free.

If you choose not to take the tax free cash from your pension this will enable you to obtain a higher income, which will be subject to income tax in the usual manner.

If you do not to take tax-free cash prior to arranging your annuity you cannot change your mind.

It is worth considering whether you have debts that could be paid off or reduced by the tax free cash or what sort of return you might get from investing the tax free cash as opposed to receiving an income.

Most pensions have a minimum tax free cash entitlement of 25% of the fund value although some pensions can have higher tax free cash entitlements.

What is a Benefit Crystallisation Event (BCE)?

A BCE occurs when you take benefits from a pension.

When you take benefits, or ‘crystallise’ your pension this will be measured against your remaining lifetime allowance and if this is exceeded a lifetime allowance charge will be made by HMRC (more information can be found at www.hmrc.gov.uk)

As part of the annuity application process you will need to complete a form enabling the lifetime allowance calculation to be made. Of course, we can help with this as it can be a confusing and complicated area.

Do I have to take an annuity with my existing provider?

You certainly do not have to. Indeed you will often find that you can obtain a higher retirement income, or an income that is more suitable by taking the ‘open market option’ and purchasing your annuity through an alternative provider.

We are best place to assist you with this as we advise based on a knowledge of the whole of the market. Get a free, no obligation open market quote now. This will allow you to evaluate your annuity options and compare the rate offered by your own pension provider to those offered by other providers.

Where do I buy annuities from?

When you reach the normal retirement age set on your pension you will be sent an annuity quotation by your existing pension provider.

Many people do not realise that they do not have to simply accept this option and in the majority of circumstances it will benefit you to search the open market for the best rate. Doing this yourself is not easy as some annuity providers only deal with Independent Financial Advisers and the forms necessary to move the pension money over to the annuity provider can be daunting to the uninitiated. Alternatively, the Annuity For Life service searches the whole of the market to find a competitive rate, and then if you choose to proceed we’ll handle the paperwork for you.

Quotes are free and you are not obliged to proceed.

What are the differences between annuity providers?

Apart from the differences in the annuity income each provider will offer, there are a number of things to consider. This is particularly true if the difference in income on offer between providers is minimal.

Financial strength of the annuity provider is an important consideration. Many annuitants will live for as long as 30 years from starting their annuity and be dependent on the annuity income. If you obtain a quote from us we will provide you details as to the annuity providers financial strength.

To see how much annuity income may vary between providers, get a free annuity quote now.

The time taken to arrange an annuity can vary significantly. It is often down to how quickly your existing pension provider takes to move you money over to the annuity provider. A typical annuity can take between four to eight weeks to complete but it could take longer or less time than this. Some pension providers are very slow and difficult to deal with. With us working on your side however, you can be confident that your annuity will be arranged as quickly as possible and you can start to enjoy an income from your pension savings.

Most quotes are guaranteed for at least 14 days. Some annuity providers guarantee the quote for substantially longer. It is however, important to get your pension moved as quickly as possible. We do everything possible to ensure you get the same annuity rate as the quote annuity companies do however, change their rates from time to time.

If the funds are not transferred from your pension provider to your annuity company during the guarantee period and the annuity rates change, then your annuity income will also change for better or for worse. It is important therefore for you to deal with any correspondence or telephone calls from us as soon as possible so that we can efficiently get your pension monies moved and secure the quoted rate.

Do smokers get better rates?

You will almost certainly get a better rate due to smoking. People are generally ‘programmed’ to say that they are healthier or smoke less than is often true! It is important to answer questions as truthfully as possible. If you smoke cigarettes regularly and have done so for the past 10 years make sure you declare this to us.

Annuity providers work on a banding system when it comes to quoting for smoking. For example you may get a better rate for smoking 21 cigarettes a day as opposed to 20 because you move into another band.

Do certain illnesses get better rates?

Yes particularly if they are illnesses that require medication of some sort.

Where can I buy an annuity?

You can obtain quotes from a variety of leading UK providers using our advice service without cost or obligation. Once you are happy to proceed, we can help you purchase the product, complete all the necessary forms for you and handle all of the administration to set up the annuity.

What income will I recieve in retirement?

This will depend on the product, the options you choose as well as your state of health, age and lifestyle. Even things such as postcode have a bearing.

I have a history of health conditions. Can I still get an annuity?

Yes. In fact you will quite possibly benefit from a higher income by having certain medical conditions. These are called enhanced or impaired rate annuities and they pay a higher income as life expectancy is considered to be reduced.

What is a Lifetime Allowance?

The Lifetime Allowance is the maximum value of pension savings an individual is allowed to draw without incurring tax penalties. The amount is set by the government and is £1.75m in tax year 2009/10 and will rise to £1.8m in tax year 2010/11 (beginning April 6th 2010). The lifetime allowance however, is going to be reduced to £1.5m from 6th April 2011.

What is Income Drawdown / Unsecured Pension?

Income drawdown (sometimes referred to as Pension Fund Withdrawal, or Unsecured Pension) is a product that allows you to draw your income directly from your accrued pension fund.

It carries a higher level of risk than an annuity contract as your pension fund remains invested in stocks and shares. If you would like to know more about Income Drawdown please contact us.

What is the Open Market Option (OMO)?

This is the right you have at retirement to shop around for a better annuity on the market. By shopping around, rather than staying with your pension provider, you could find you receive considerably more income in retirement.

How can I find out how much is saved in my pension?

Each pension provider should send you a pension statement outlining the current value and the expected or estimated value of your pension at retirement. If you don't have the statement or any details you can call the provider, but failing that you could use the Pension Tracing Service.

How will my pension provide me with an income in retirement?

When you retire (if you have a defined contribution pension) your pension won't automatically provide an income. Normally you would have to use the pension fund to buy an annuity and it is this product that provides you with an income guaranteed to be payable for your life.

What is a Pension Annuity?

A pension annuity is an income guaranteed to be paid to you for the rest of your life. During your working life your pension builds up a pot of money and it is this that is used to purchase a pension annuity. In return the annuity offers you a regular income for life. The annuity is bought with your pension fund at retirement – there are several types:-

Conventional Annuity
Enhanced Annuity
Investment Linked Annuity
Variable or 3rd Way Annuity

You can also purchase an annuity with savings or a lump sum that aren't in a pension. This is called a Purchased Life Annuity.

Can an annuity be altered at a later date?

Once you have bought a conventional annuity you can't transfer it to another annuity, change the options you selected at outset or change to another provider. It is therefore important to consider your options carefully before buying an annuity.

How secure are annuities?

Annuities are very secure financial products. Annuity providers are regulated by the financial services authority and have to keep large amounts of capital aside to meet the FSA rules and regulations. If an annuity provider did go bust then the Financial Services Compensation Scheme would step in. This scheme protects currently 90% of the value of your annuity. You can check the latest position at www.fscs.org.uk as these arrangements may be subject to change.

How much does your service cost?

Full details of our terms of business are provided in the 'Key Facts of our Services' document. We only charge fees by special prior arrangement. The majority of our clients opt for us to be paid by a commission. The commission we are paid ranges between 1 to 3% of the purchase money of the annuity. The commission is paid to us by the annuity provider. You do not therefore have to write us a cheque.

What do I need to make decisions for my retirement?

It's important to be thinking about your retirement as early as possible and plan ahead for retirement. You need to consider how much income your pension may provide in your retirement and then decide if you need to work longer, save more and begin to slow-down, or potentially (if your savings allow) think about retiring early.

Do all pension schemes have to buy an annuity?

No - Annuities are only relevant to members of "money purchase" or "defined contribution" schemes.

If you are a member of a "final salary" or "defined benefit" scheme your employer is responsible for ensuring that there is enough money available at the time you retire to pay your pension. To understand which type of scheme you are in you could ask your employer(s) or your pension scheme provider.

Do I have to take an annuity?

Not necessarily. It may be possible for you to draw your income directly from your pension fund. This is known as an unsecured pension.

It is important that you understand the pros and cons of this type of arrangement, and due to additional risks involved we suggest you seek independent financial advice if you wish to know more about this particular option.

Can I get a better annuity rate if I suffer from a illness?

It depends on the severity of the illness. Although even relatively common things like high blood pressure will mean you qualify. The only sure way of knowing is to speak to disclose very thin and make a proposal to the annuity underwriter.

We can help you do this.

Why do you need my medical information?

Annuity providers need to know your medical information and that of your spouse or financial dependant in order that they can provide you with the best annuity quotes. If you are considered to have a shorter life expectancy then they will offer you a higher income. All medical information may be cross-referenced with your medical records it is therefore important to be accurate and fully disclose all relevant information.

We can help you capture all the information and then use this to get quotes from the whole of the market making the process efficient and thorough.

What if I'm not sure of my medical history?

If you are not sure of your medical details we recommend you arrange a meeting with your doctor such that you can be sure. At the same time it may be worth having a medical particularly if you haven't had one for some time.

What will my spouse get if I die?

This is possible but it depends on the type of annuity you arrange.

To discuss your options contact us.

How long does it take to arrange an annuity?

Once you have decided on your annuity and the available options this can take 2 to 4 weeks in most instances.

We use our contacts and experience to ensure that things are arranged as soon as possible. To benefit from our service contact us.