Conventional Annuities
Conventional annuities, also referred to as
traditional annuities, are the oldest and most common
type of annuity available. They are available from life
assurance companies and must be bought from the proceeds
of a pension plan.
Rates vary considerably and it is very rare for your
pension provider to offer the highest rate. Fortunately,
all pensions have something called the Open Market
Option and this will allow you to shop around and buy
your annuity from the company offering the best rate.
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annuity calculator
Once you have bought a conventional annuity you
cannot change your mind, for this reason you should
consider your options carefully and take advice. There
are other types of annuity that allow you to make
changes at set times in the future, these are called
term annuities.
An annuity comes to an end when the lives assured
(that is you and maybe your spouse\partner) die,
although you may choose to include a
guarantee which means the annuity will be payable
for a minimum period, after which no further payments
will be made. If you die relatively young the income
that you receive could be significantly less then the
amount invested, conversely if you live a long life you
may get back more than originally invested. If this
concerns you then you might wish to consider
term annuities
or alternatively secured
annuities.
Who should consider Conventional Annuities?
Anyone that has a pension fund as they must use this
to
buy an annuity. They will be most suitable for people
that require a level of income that is known from the
outset and will not change unless specifically designed
to do so (escalating
annuities).
Of all the annuity types available, a conventional
annuity is the safest, so it is most suitable for people
that cannot take any risks with their income, usually
because this annuity income will make up a good
proportion of their overall income in retirement.
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annuity calculator
What are the main options are available?
You can choose to include a partner or spouse who can
receive an income after your death - this is known as a
joint life annuity. The amount of income that your
partner receives will be determined when you commence
the annuity, it could range between 25%-100% of the
annuity that is payable to you.
A
guarantee can be included usually at very little
cost. This ensures that income is paid for a minimum
period, irrespective of how long you live. You could
choose a 5 or 10 year guarantee.
Income can remain level throughout payment or
increase in line with inflation or a fixed percentage
(for example 3% or 5%). This is called
escalation. If you choose for income to increase it
will initially start at a lower level. We have a very
useful calculator
that demonstrates this graphically thus showing the
point at which income from various annuities converge.
There have been several developments in the annuity
market which enable you to consider more diverse annuity
products. These may or may not be suitable for you but
at least consider them before deciding to buy, we will
be happy to discuss your needs.
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annuity calculator
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