Annuities

An annuity is simply an income purchased with capital.

In this context all pensions, where the pension is purchased by using the built up fund, are annuities. At its most basic, a pension annuity is simple – you hand over your fund, you get an income until you die.

In reality it is more complex.

Annuity: Open Market Option

As a pension fund holder you should be told that as well as buying an annuity from the company with whom you have saved your pension, you can take the fund to another company and buy it from them.

It may be in your interest to explore this option. It is highly likely that you will be able to get a much better pension by moving the fund.

It is also worth noting that, to some extent, the annuity rate that a company can offer will depend upon many things outside of its control. Sometimes companies not normally noted for their annuity rates will offer good ones, sometimes those with good rates offer poor ones.

The rest of the options are largely driven by your personal circumstances, and possibly governed by scheme rules:

• Would you like your income to be fixed, or rise each year (by a fixed percentage, or inflation etc)?

• Are you in ill health? If you suffer from medical condition likely to result in premature death, then it may be possible to apply for an enhanced or impaired life annuity to reflect the fact that early death is likely.

• If you have a partner, do you want the pension to continue after your death, until theirs, and if so, do you want the level to be maintained, or reduced?

• Are you concerned about a sudden early death and whether your pension fund would be lost to your beneficiaries? If so, you can opt for a guarantee, or a Protected Annuity, both of which are ways of ensuring that some/all of the used fund goes to your beneficiaries.