Tag Archives: Higher Annuity Rates

Alternative Annuity Options

In years gone by there was very little choice for those arriving at their retirement. Your choice would have been to take up to 25% of your pension fund as a tax free cash sum then use the balance to purchase a guaranteed income for the rest of your life in the form of an annuity or you could move into income drawdown. Typically someone with a lower investment risk profile would purchase an annuity as the income paid to them would not be dependent on investment performance, whilst someone wanting more flexibility and potential for investment growth may consider the income drawdown option.

By making a decision to purchase an annuity you are making a choice that will last for your lifetime. The options chosen when you purchase cannot be altered in the future should your circumstances change. An example of this could be that you purchase an annuity when you retire at the age of 65 and at that time you were fit and healthy and could only secure your annuity on standard terms. Five years later you find that your health deteriorates and you could have achieved a much higher annuity rate on enhanced terms.

There are temporary annuities available that can secure your income over the shorter term then guarantee a figure that will be payable after the fixed term therefore allowing you to review the annuity rates available, effectively delaying the final decision about the purchase of your annuity and possibly allow you to benefit from potentially higher annuity rates at a later date or to purchase an enhanced annuity if your health has deteriorated. It should be noted however that this option would carry the risk that once your plan reached its maturity date annuity rates may well be less than they are at the start therefore leaving you in the position where you could see a reduction in the level of your income.

Another alternative to the standard annuity would be a with profits annuity. These plans allow you to set your income level within certain parameters. They will generally guarantee a minimum income level and the balance of the income is dependent upon the profits declared by the annuity provider. If the income level is set at a relatively low level you should see growth in your income therefore giving you the potential for your income to keep pace with inflation. Usually part of the increase in your income will be guaranteed. The danger with this type of plan is to set the income level at the upper end of the scale because if the bonus rate required to achieve that level of income is not declared you could see your income reduce. Worthwhile considering if you have other sources of income in retirement and you can absorb the fluctuations that this type of annuity my present.