Monthly Archives: October 2013

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.

Annuity Advisers Will Always Err on the Side of Safety

For those interested in using their pension saving funds to invest in an annuity, the annuity market has several different options – both in terms of products as well as providers. An annuity once purchased cannot be reversed, so it is strongly recommended that you shop around and explore the open market before making a decision. There are a number of resources and tools available today to help people understand the annuity market. Many people also consult Annuity Advisers for guidance and advice.

Independent financial advisers and financial experts can offer impartial guidance and help you understand different options that may be available to you. They could help you understand your own financial needs, particularly future needs, and help you make the right decision that can serve you well over the long term.

In general, annuity advisors and independent financial advisors tend to err on the side of caution and suggest options that are safer rather than riskier alternatives. This is because of two main reasons.

The first reason is that annuity advisors and financial advisors have been trained to be cautious and to play it safe when it comes to their clients. After all, it is their job to help people make sound financial decisions that can pay off in the long term. It is not their job to help their clients take unnecessary risks and gamble their long term financial security on potentially unsafe investments.

The second reason is also related to this. The fact is that financial advice is a tricky area. The position of annuity advisors and independent financial advisors is one of great responsibility. Giving the wrong advice or advising a client to take an unnecessary risk without fully explaining the consequences is akin to professional suicide on the part of the advisor.

The fact is that they have to be cautious and this is because the wrong advice could result in them getting sued. If a client feels that they have received wrong advice from their annuity advisors or independent financial advisors, and have suffered damages as a result of this advice, they can in fact sue the individual advisor or their company.

In fact, the Financial Conduct Authority protects customers and could even offer compensation to the client through the Financial Services Compensation Scheme for the wrongdoings of annuity advisors and IFAs. The FSCS is a last port of call for customers of authorised financial services firms.

How to Find Out Your Annuity Fund

We are living for longer today than ever before. At the same time, the cost of living is ever rising. Changing social and economic factors mean that planning your finances during retirement has become more important than ever before. After all, retirement is known as the golden period, when one should be able to enjoy the fruits of life’s labour. It is therefore vital to plan carefully and optimise your financial assets to provide for you when you stop working. Things like annuity value prove to be immensely significant during retirement, as an annuity is one of the most important, and often the only source of income for pensioners.

An annuity provides a regular and steady income in exchange for a lump sum. People usually invest their pension savings into an annuity scheme, which then pays out an income either for as long as you live, or for a pre-agreed period of time. How much income an annuity can offer you, or annuity value, depends on the size of your Annuity Fund, which is the amount invested in the annuity, as well as various other factors.

The most important factors that determines annuity value is the type of annuity you choose to invest in and the current annuity rates. Other factors include age, gender, and location. Depending on your health and lifestyle, you could also be eligible for an enhanced annuity, which has a higher annuity value based on the shorter than average life expectancy of the applicant.

Often an annuity is the only source of income during retirement, and so choosing the right annuity with sufficient annuity value is extremely important. Once you buy an annuity it cannot be changed or cancelled – so it is important to make the correct decision the first time around. An annuity offers a chance to make the most of your life savings, but choosing an annuity that underperforms or does not suit your needs could mean losing your life savings to an ineffective investment.

It is imperative to shop around and use the open market option to find the most suitable annuity with a sufficient annuity value. You can consult an independent financial advisor with expertise in the retirement sector to understand the implications of investing in different types of annuities and choosing the best option. You can also use online tools like annuity calculators etc. to find out the best annuity value you could get in exchange for your annuity fund.

Guaranteed Annuities can secure your retirement future

Annuities are one of the most common and popular ways to turn pension savings into a regular income during retirement. There are many different types of annuities – and fixed guaranteed annuities and variable annuities are the two main types. Guaranteed annuities provide a guaranteed income during old age, either until you die or for a fixed, predetermined period of time.

As opposed to variable annuities, guaranteed Annuities or level annuities offer a guaranteed income to be paid for a fixed period of time. This can be for a fixed period such as five or ten years, or in case of lifetime fixed annuities, until the end of life. Guaranteed annuities offer the peace of mind and security of knowing exactly how much you will receive and for exactly how long.

Having the security of knowing that you have a fixed, regular income no matter what can not only offer peace of mind but can also be very useful when planning your budget in the short term, as well as the long term. Knowing exactly how much your income is going to be can help you plan your finances and adjust your lifestyle to suit your income. You can also plan ahead for any additional expenses and make sure that you have enough money when you need it.

With rising costs of living, rising inflation and people living for longer than ever before, financial planning during retirement has become extremely important. A proper budget is one of the most important tools for financial planning when you have a limited income – and this is especially relevant during retirement, as retirement is the time when most people need to optimise their life savings in order to make the most of them. A retirement income is meant to support your day to day expenses, as well as any other expenses you may have from time to time, and guaranteed annuities can help you plan these expenses properly.

For instance, if you need to plan a big one off expense such as a holiday, a gift to your children, or home improvement works, you can plan it ahead so that you have enough money to meet your monthly expenses and enough saved up for the one off expenditure.

A fixed guaranteed annuity offers a steady and stable source of income for a fixed period of time, or until the end of life, depending on the terms of the annuity purchased. Since you know exactly how much money you will receive, at what intervals, and until when – you have the freedom to plan your expenses in a manner most suitable and comfortable to you. For those who rely solely on their annuity for income during retirement, guaranteed annuities can offer the most reliable and stable form of financial security.

Annuities Rates & Their History

Annuities rates have fallen over the last few years, and even in the last few months. This has been due to a number of factors. The EU gender ruling: that it is no longer permissible to have separate annuities rates for men and women, have meant a downturn in the rates. The Solvency 2 ruling means that annuities providers are going to have to be more careful about how they risk their portfolios, which has also meant a decrease in annuities rates. Add to this the fluctuations in the Eurozone, and you will understand why annuities rates have continued to fall. Each of these factors has meant an increase in gilts, and therefore a decrease in annuities rates.

When you purchase your annuity, the annuity provider uses your annuity to purchase gilts, and it is actually the returns from the purchase of the gilts that pays your monthly income from your annuity. This means that even small fluctuations in the market will affect annuities rates. Currently if a single male, at 65 years of age, purchased an annuity for £50,000, he would likely be getting just under £3,500 a year. Clearly this is low, and annuities rates are not where they have been in the past.

Annuities rates are set to fall further, especially if investors are concerned with the containment of the Unisex annuity rates. Many pensioners have therefore held off purchasing annuities, waiting for the Eurozone crisis to resolve itself, or at the least stabilise. With the Unisex annuity rates coming into effect in December 2012, this will probably mean another dip in rates.

However, in the bigger picture, there is good news. Assuming that interest rates continue to normalise, the yield on gilts will also improve, which in turn means that annuities rates will increase. This process will take a few years, but it should happen as has been predicted.

Unfortunately, with most things in the financial market, there is nothing that can be taken for granted. This is certainly true of annuities rates. Annuities are one of the lower-risk investments that you can make at retirement, and it can certainly be a good use of your hard earned pension. But in order for this to be the case, you have to do your homework and find the best annuities rates that you can. If you can afford to wait until annuities rates increase, then that is good, but not everyone has that luxury.

What if the Annuity Payable Exceeds My Care Fees?

An immediate needs annuity is a product designed to help those already in care to meet the costs of long term care. The annuity, in exchange for a lump sum fund makes guaranteed payments towards care until the end of life. The payments are tax free so long as they are paid to a recognised care provider.

One of the main concerns that people have about immediate care annuities is that the amount to be paid out is fixed and does not change over time. This means that even if the cost of care increases, the amount payable through the annuity remains constant, and any difference must be met by the client.

A flip side of this scenario is if the cost of care reduces for any reason. The two main reasons that the cost of long term care could reduce over time is because of a change of residential care home or nursing home, or because you are awarded registered nursing care contribution from the NHS.

In case the amount paid by a care annuity exceeds the cost of your care, then it may be possible to convert your immediate needs annuity to a purchased life annuity. This will enable you to receive the additional payments. However, it is important to note that this additional income will be taxable by the Inland Revenue at the savings rate of 20%.

The tax rate applicable is that of the income bracket into which you will fall. Your total income from all sources will be considered, and this will include any other annuities, savings and investments. If you fall into a higher tax bracket, then the additional annuity payment will be charged at a higher rate.

A care annuity is a niche financial product designed to meet very specific needs. It is designed for those faced with the prospect of potentially unending costs of care, and who also want to protect their savings and assets from being corroded by care costs.

If you are considering opting for an immediate needs annuity to meet the costs of on-going care, it is important to seek advice from a qualified financial advisor who can give you impartial and objective advice not only about whether it is the right option for you, but also advise you about the different implications of having an immediate needs annuity.

What is an Immediate Needs Annuity?

Financial planning during old age is becoming increasingly important as we live for longer and as the cost of living goes on rising. One of the most important aspects of retirement can be the prospect of the potential need for long term care. There are many ways to plan your finances in order to meet your needs, whether it is the expenses of day-to-day life, or the costs of long term care.

If you or a loved one are already receiving, or will start receiving care soon, there are ways to optimise your resources so that the costs of care do not end up exhausting your entire life savings. One effective tool to help with long term care costs is an immediate needs annuity.

An immediate needs annuity is an annuity designed for someone in imminent need of care or already receiving care. The main advantage of an immediate needs annuity and what makes it an attractive option for those looking at the prospect of meeting care costs over a long period of time, is that it continues to pay the fixed amount for as long as you need care.

Immediate needs annuities can be suitable for those who are facing impairment which makes it necessary for them to receive care. This could be either mental impairment or physical inability to perform at least one ‘Activity of Daily Living’. The ADLs are essentially markers that define the ability to live independently and include being able to wash yourself, dress yourself, feed yourself, be mobile in the house and matters pertaining to continence.

Immediate needs annuities work on the same principle as conventional annuities in that they are based on a cash lump sum, in exchange for which you get regular payments from the insurance provider. There are different providers for immediate needs annuities, and just like with any other annuity, it is advisable to shop around for the best rate.

Unlike conventional annuities, however, the payments made by an immediate needs annuity are tax free, provided they are used directly to meet recognised costs of long term care. Also, an immediate needs annuity will be underwritten individually for each case, depending on the individual circumstances. Once the payment has been made, there are no further reviews, and there is usually a 30 day notice period in case you change your mind. The nature of the health problems and life expectancy play an important role in determining the amount that is paid out. The shorter the expected term of payment, the higher the payment is likely to be.

What Options can I choose on my Annuity?

On reaching the minimum age of 55 years of age you may start to consider your options for establishing an income to last throughout your retirement. Usually your pension provider will send you out a wake up pack as your planned retirement date approaches. This pack will usually include a basic quote for you to take an annuity with them.

It is very important to establish the best rate that could be available to you by using your Open Market Option.

The Open Market Option (OMO) is your right to take your pension fund to another provider to purchase an annuity or alternative retirement income. As the difference between the best and worst annuity rates can be considerable, it is worthwhile taking the time to find the best possible income for your given requirements.

If you have pension funds from a number of different pension schemes it is usually beneficial to take a view of the whole pot of savings as better annuity rates can sometimes be achieved for higher fund values.  Where a number of arrangements are to be used it is normal for the funds to all be transferred to the annuity provider to purchase the annuity under an Immediate Vesting Pension. This means that all funds are transferred over with the tax free cash being paid by the new provider, rather than the ceding scheme.

The rate applicable will be determined by the age, health and up to December 2012 your sex. From December 2012 to new EU Directive means that no differential in cost can be applied due to the applicant’s sex. Higher annuities are available for those that smoke and also health and lifestyle factors.

Other factors affecting the rate of your annuity will be the options that you choose such as escalating income, guarantees and spouse’s benefits. Generally speaking if you took a basic annuity with level income, no guarantee and no spouse’s benefit your income would be considerably higher than someone who chose to take an annuity increasing with RPI with a 10 year guarantee and 100% spouse’s benefit payable on death.

Annuity Rules Are The Biggest Misconception

An annuity is an important tool in the retirement sector, which allows you to draw your pension fund as regular income during retirement. Investing your hard earned life savings into an annuity is a very important decision indeed, and it is vital to shop around not only for the most suitable annuity type, but also for the most suitable annuity provider for you.

The biggest misconception when it comes to annuities is that one is required to set up an annuity with their pension provider. The truth is that thanks to the open market option, there is absolutely no need to be limited to your pension provider for an annuity. In fact, the Government is trying to encourage people to use the open market option and shop around for the best annuity deal before investing.

Annuity rates can vary very widely between providers. Also, the variety of annuity products available means that different annuities will have different rates even from a single provider. So a company that offers the best rates with one type of annuity may not necessarily do so with a different type of annuity.

The first step towards finding the right annuity, therefore, is to understand your own needs and find out what type of annuity works best for you. For instance, would you need a single life annuity, or a joint annuity? Would you rather have a guaranteed income for life, or invest in a higher risk investment linked annuity? Would you need a fixed annuity with fixed payments for life, or an escalating annuity? These are some of the questions that need to be answered before you can shop around for the best annuity quote.

Your pension provider is bound to offer a quote, and there is no reason why you should not consider this quote, as there is every possibility that it will not only be competitive but may even be better than the open market options. The point is not to limit your options, but to shop around and make an informed choice about this important step in life.

The Financial Services Authority has worked hard to ensure that pensioners have the right to exercise an open market option and shop around for annuity quotes. The FSA continues to encourage people to use this option and has also made it mandatory for your pension provider to remind you of this option while offering a quote. That you must purchase an annuity from your pension provider is a myth, but thankfully, one that is continuing to diminish rapidly.

Which Annuity Is Best?

The main goal of any person who has retired is to usually convert the savings that they have built up towards their retirement into a regular source of cash, so that they may continue having an income. A lifetime annuity is what will usually determine the amount that you are paid, and since you will be paid until you die, it is best that you take the time to find a provider offering the best quote.

There are people who will usually take the first quote that they get although it may not be the best. So, how do you find out which annuity is best and what is the best way in actually obtaining it?

To start with, it is important that people realize that they do not need to purchase their annuity from the same firm that also holds their pension funds. A person can shop around and they may get lucky by getting a better offer from another firm for their annuity.

The Open Market Option offers people a chance shop around and get the best annuity quotes and if you are looking for the best quote, then this is essential in order to obtain the best deal and therefore best income from the pension pot available.

There are a number of annuities that you can choose from, but the most popular are lifetime, unit linked, with profit and enhanced annuities. However, the choice that you make for your annuity will usually be based on your sex, age, health and even marital status.

However, your preference will also contribute to deciding which annuity to choose. It is also important that the rates that you will be paid are determined beforehand so that you may make an even better choice. For instance, people with a serious medical condition can go for the enhanced annuity, since these schemes offer a greater annuity based on the fact people who qualify may not live for as long as a healthy person.

Therefore, there are many annuities that are offered in the market today, and it is up to a person to make the choice on what they want to get. But it is advised that annuity experts are consulted so that a person can be able to make a choice based on informed knowledge. This is important since once you make your choice, you will be stuck with it for the rest of your lifetime.