What is an Annuity

An annuity is a type of policy that provides a guaranteed regular income in exchange for a lump sum payment.

When you make the decision to retire and make use of your retirement funds you have built up through your pension policies, you need to convert the capital you have accumulated into a regular income. Purchasing an annuity is one way of doing this. Do remember you can take at least 25% of your pension pot as a tax-free lump sum.

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Once you have made the decision to purchase an annuity there are several different types which can be considered:-

  • Conventional annuities
  • With profit or unit linked annuities
  • Enhanced rate annuites
  • Impaired annuites
  • Value protected annuities

It is important to remember that you do not need to buy your annuity through your existing pension provider. A feature called the Open Market Option means you can transfer your funds to the best annuity provider available currently without penalty (penalties may apply if taking benefits prior to retirement age, ask us for more information). Switching could boost your pension income each year and arrange the type of annuity that is appropriate to your needs.

Once you have purchased an annuity it is a decision that will affect your income for the rest of your life so it is important to get it right!

Which Annuity?
Traditionally most people have opted to buy a conventional lifetime annuity on retirement. This provides a guaranteed income, but there are several options to pick from.

Level annuity - Your income will stay the same each year irrespective of change in the cost of living.
Increasing annuity - Your income will increase with the cost of living for the rest of your life or alternatively you can specify a specific percentage each year.

Joint-life annuity - Some or all of your income will continue to your partner when you die if they outlive you.
Investment-linked or with profit annuity- Rather than purchasing a guaranteed figure you may wish to link your annuity income to the investment markets, which this type of annuity provides. Typically this is more suitable for larger pension funds and you need to be aware that your annual income could go down as well as up.

Enhanced annuity- If you regularly smoke, take regular medication or if you have a medical condition, you may be able to obtain a higher income.

Impaired annuity-These pay a higher level of income for those who have shortened life spans due to illnesses.
Value protected annuity- These provide a safeguard to your annuity pot up until the age 75 to protect against premature death.
Click here for more information on the types of annuities.

Know what your options are
Think Annuity has access to all the annuity providers and can assist you in the selection of the right option for you. There are huge differences between the annuity rates offered by the various annuity providers and these change on a regular basis so it is important you research the market to get the best rate.

Many people are still under the impression that they have to buy an annuity from the company that has held their pension. This is not the case, as you have the right to shop around for the best pension annuity rates when you retire - it's called the Open Market Option (OMO). Worryingly, figures from the Association of British Insurers (ABI) show that 61 per cent of people who bought an annuity in 2007 did not shop around in this way.

The Open Market Option
Put simply, this option allows you to transfer your pension funds without penalty to an annuity provider offering the best rate for the annuity of your choice. Buying an annuity is one of the most important financial decisions of your life as it determines the amount of income you will receive during your retirement. To obtain the best out of your retirement fund it is highly important to get the best amount of income from your annuity.

Specific tips to get the most from your annuity:

Click here to try our Annuity Options Helper

If you are unsure as to which annuity may be the most appropriate for you, there are other options such as, Phased Retirement or Income Drawdown which may be more beneficial to you. Please contact us at annuity-questions-answered@thinkannuity.co.uk - We can then put you in contact with the an independent financial expert to advise on the best options for you.

Why Use Think Annuity

Choosing the right annuity isn't easy, at Think Annuity we're leading the way in making it simple.

  • We can potentially get you more income than your current provider
  • We provide a hassle free and no obligation personalised quotation service
  • We'll assist you through the maze of retirement options
  • We compare all the leading providers annuity rates
  • We facilitate the best Independent Financial Advice

Simply go to our quote form, answer all the straight forward questions.

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