Please choose a subject from the list of frequently asked questions below.

• What type of annuity should I have ?
• What is an "escalating annuity" ?
• How much annuity will I receive ?
• How long will my annuity be paid for ?
• Do I pay tax on my annuity ?
• What is a guaranteed period ?
• How much income can I hope to receive ?

What type of annuity should I have?

The type of annuity you opt for will be determined by your personal circumstances at retirement – are you single or married? do you have any financial dependents? are you in good health?! This sort of decision cannot be made until you are near to your retirement date as your personal circumstances could have changed since starting your pension.

A Single Life annuity will be payable on your life and will cease on death, if it is out with any chosen guaranteed period.

If however you select a joint life annuity the annuity will be payable until second death, again out with any chosen guaranteed period. A joint life annuity will provide less income than a single life annuity since the period of payment covers two people rather than just one.

You can also provide for your spouse or financial dependent by setting the annuity up so that on your death they receive either 50% or 66.67% of the annuity that was payable to you. The higher the spouse's annuity though the lower your annuity will be.

• same sex partners
• financial dependents
• others

What is an escalating annuity?

You can also choose to have the level of income you receive from your annuity to remain level or increase each year in payment. If you opt for an escalating annuity then, initially, the level of income you receive will be lower than what you would be payable from an escalating annuity. You can specify the level of annual increase you require, e.g. 3% or 5%, or you could arrange that it increase in line with the Retail Price Index, subject to a maximum of 5% per annum.

How much annuity will I receive?

1. The amount of annuity you will receive depends on certain factors,
   
2. Size of the pension fund.
3. Whether you are male or female – females normally outlive men, which is reflected in the rate of annuity they receive.
   
4. Mortality or Life Expectancy – the older you are the higher the level of annuity that is payable.
   
5. Whether you are a Smoker or a Non Smoker – smokers receive higher levels of annuity due to the health risks attached to smoking.
   
6. State of Health – Annuity providers offer higher levels of annuity to people who unfortunately have a medical condition that could shorten their life expectancy these are known as Impaired Life Annuities.

The annuity provider will calculate the level of annuity it is willing to pay based on the factors above. Lets say based on your personal details and fund value you are offered an annuity that works out to be the equivalent of say 13 years of income (fund value divided by annual annuity).

If you live for 15 or 20 years, you will have received more income than the annuity provider had calculated they would have to pay out! However, the reverse can also happen and premature death may occur, which would mean that the amount of annuity paid out would be less than the fund value at retirement. The annuity would cease unless you had opted for one of the many options that are used in order to safeguard your dependents on premature death.

How long will my annuity be paid for?

The answer to this question is that the annuity is paid for life regardless of how long that may be.

Do I pay tax on my annuity?

You will pay tax at your highest rate on the annuity you receive from the open market option, however if you do not pay tax then you can receive the annuity gross. If the annuity you have purchased is via your own capital and not from an existing pension fund then part of the annuity you receive is not taxed as it is deemed to be a return of your capital.

As well as annuities purchased through the proceeds of a pension fund, it is also possible to buy an annuity from your own capital.

With a purchased life annuity part of each payment is regarded as a return of capital and is not taxed. The balance is regarded as income or interest and is taxable.

There are a number of options that can be selected for your annuity including a minimum term, spouse's benefits and escalation in payment. As a general rule however, the more of these options you include on your annuity the lower the initial payment.

What is a guaranteed period?

It is possible, and in most cases very advisable, to include some form of guaranteed period so that in the event of premature death your dependents will receive some of your pension income rather than none at all. There are two guaranteed periods available, 5 and 10 years respectively. The annuity will be payable for a minimum of 5 or 10 years from the inception of the annuity or life thereafter.

How Much Income Can I Hope To Receive?

By completing our quotation request form with your personal and pension details, together with any requirements you have, then Keegan & Pennykid (Insurance Brokers) Ltd will provide you with a comparison of the benefits you have been offered by your existing pension provider.

Should you wish further information or advice, then please contact us.

Annuities