Pension Advice on Advisers with Pension Finder

Choosing an annuity is a life changing decision and one that usually cannot be changed once the contract has been signed. This is why there are so many options when it comes to choosing an annuity.

Joint Life Annuity

If you are married, one choice involves deciding if you want your spouse to benefit from an annuity income should you pass away before they do. The point of a joint life annuity is to protect your spouse and ensure they receive an income that allows them to remain out of financial trouble. When you fill in the annuity application form, the person you enter as spouse or partner will receive the annuity income upon your death unless you specifically state otherwise.

This is a very important decision and one which must be made after consulting with your spouse or partner. It is possible to leave the entire value of the annuity to your beneficiary or choose a set percentage. If your spouse already has a comfortable income stream of his/her own, the joint life annuity is not something that should concern you unduly.

Single Life Annuity

This is the basic annuity form and pays you an income for the rest of your life. No one else is entitled to the money and the amount received exceeds that which your spouse would receive from a joint life annuity.

A Constant Income

Those who choose an annuity income that remains at the same level will receive a much higher initial payment than those who opt for an increasing level annuity. It should be noted however that inflation will start to eat into this type of income within a few years. Although you will still be receiving the same amount of money, the value of goods and services is bound to increase with inflation. This means the actual amount you receive is considerably less than it was when you first purchased the annuity.

Keep Track Of Inflation

It is estimated that the recent rise in inflation is costing UK pensioners up to £900 a year. The UK no longer tracks inflation via the Retail Price Index (RPI), opting instead to measure inflation using the Consumer Price Index (CPI). Choose an income that keeps pace with CPI levels and thus with inflation. This will ensure that your income will not be negatively affected by rising inflation. It is also possible to choose an annuity that provides you with a set percentage increase. This will mean that your initial income will be lower but it will rise as time goes by. Over the course of a number of years it may well be the best option.

Guaranteed Payment

Lifetime annuities are guaranteed to pay you a certain level of income for the rest of your life. However, you also have the option of guaranteeing the income for a certain length of time, possibly 10 years from its purchase for example. Should you die before this 10 year period elapses, the rest of the income will be paid out in the same way as it would if you were still alive. The only difference is that the money will go to those who have been named as beneficiaries in your Will or else the money goes to your estate.

What Are Protected Rights?

If you have a State Second Pension or State Earnings Related Pension Scheme and have contracted out of it, your pension pot will have what are known as protected rights. There is a clause which states that any income from this portion of your pension fund must have half a spouse’s pension if you are in a civil partnership or married. This money will then be paid to your other half upon your death,

There is a 5 year minimum guarantee period and you will be allowed withdraw a lump sum worth one-quarter of your pension fund tax-free as well as having the ability to access the pension fund once you turn 55. As there are numerous pension schemes, it is likely that there will be certain restrictions depending on the company you are dealing with.

If you haven't found all the answers that you are looking for you can find similar content in the Options At Retirement sections, contact an adviser at the top of the page, or you could try these related posts:

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