Income Annuity
How do I receive an income from an annuity?
The vast majority of annuities are conventional and pay a risk-free income that is guaranteed for life. The amount you receive will depend on your age, whether you are male or female, the size of your pension fund and, in some circumstances, the state of your health.
Shop around before choosing an annuity
Your pension company may want you to choose its own annuity offering, but the law says you don't have to. Everyone has the right to use the 'open market option', to shop around and choose the annuity that best suits their needs. There can often be a significant difference between the highest and lowest annuity rates available.
There may also be alternatives to buying an annuity available to you.
Enhanced annuities
Some insurance companies will pay a higher income if you have certain medical conditions. These specialist insurers use this to your advantage and will pay you a higher income because they calculate that, on average, your income should be paid out for a shorter period of time.
Some older pension policies have special guarantees that mean they may pay a much higher rate than is usual. Guaranteed Annuity Rates (GARs) could result in an income twice or even three times as high as policies without a GAR.
A conventional annuity is a contract whereby the insurance company agrees to pay you a guaranteed income either for a specific period or for the rest of your life in return for a capital sum. The capital is non-returnable and hence the income paid is relatively high.
Income paid is based on your age, i.e. the mortality factor and
interest rates on long-term gilts and income is paid annually, half
yearly, quarterly or monthly.
Payments from pension annuities are taxed as
income. Purchased life annuities have a capital and interest
element, the capital element is tax-free, the interest element is
taxable.
Independent Advice
For more information on annuities and to see if you quailfy for an enhancement on your annuity please speak to the independent annuity advice team from one our partner firms.
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