Tag Archives: 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.

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.

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 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.