Annuities

What is an annuity?

An annuity is a type of insurance which enables the policyholder to enjoy a regular income in exchange for a lump sum of cash which is commonly built up through a pension scheme.

The amount that you are paid as part of your regular income is dependant on the insurer's estimation of how long you will live, the annuity rates, and the amount of your pension fund.

What are the advantages?

• Provision of a regular income upon retirement
• Choice of annuities available to suit your needs - Joint life annuities available
• Income paid at intervals to meet your needs

The advantages and benefits will depend upon the type of annuity you select. We recommend that you research this subject very closely and consult us prior to selecting an annuity to ensure that you get the one that best meets your needs and circumstances.

What are the disadvantages?

• Lower rates on annuities for women, due to increased expected life span
• Falling annuity rates could reduce the amount that you receive from your pension
• Not very flexible, and unless you have selected a flexible scheme, you could be tied to the policy

The disadvantages will also depend upon the type of annuity you select. We recommend that you research this subject very closely and consult us prior to selecting an annuity to ensure that you get the one that best meets your needs and circumstances.

Enhanced Annuities

These types of annuities are more personalised to a policyholders circumstances. Whether you are a smoker, have high cholesterol, are diabetic or take part in an extreme sport - these are all things that can improve the amount of income that an insurance company can provide.

Each case is normally underwritten by an insurance company and will take account of your age, height to weight ratio, any medical conditions or medications that you take. Once all the information is provided the underwriter assesses your circumstances against that of an average person of that age profile.

The logic is simple - anything that potentially may shorten a person's life such as an illness, means that the annuity provider will not pay the income for as long. Therefore they can offer you a better rate of income.

However it must be stressed that this is a specialist area that is evolving and changing constantly. Therefore the services of your Financial Adviser and their knowledge of this area is paramount to obtaining the best rate.

Important note

If you do decide to buy an annuity upon retirement, you should ensure that you check policies, rates, restrictions, and benefits very carefully, and if necessary seek advice from an independent financial adviser. Investing in the wrong annuity scheme could cost you a great deal in annual income, so make sure that you look into this subject carefully before you make any commitment.

A pension is a long term investment. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

The value of your investment and income from it is not guaranteed it can go down as well as up due to fluctuations in investment markets, and you may not get back the full amount invested.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.