On this page we aim to give you a guide to some frequently asked questions. We aim to give you an overview of the maze of options open to you. We hope you find it helpful!

An annuity is an investment policy that pays your income after retirement. The amount you receive depends on the annuity rates available at the time of purchase.

You must choose your policy before you turn 75. With modern pension plans you can withdraw up to 25% of your pension fund tax free and use the rest to buy an annuity.

If your company scheme is a final salary scheme or a defined benefits plan you will not normally need to have to worry about buying an annuity. Your income will be calculated depending upon your earnings and the number of years you have contributed to the pension scheme.

If however your company operates a money purchase pension or if you have a personal pension you will have to buy an annuity.

Yes. You do not have to buy an annuity from your existing pension company. Once you have got your pension fund’s valuation you can exercise your OPEN MARKET OPTION. This means you can contact different insurance companies for figures. This can be time consuming and laborious as annuity rates can change daily. We would suggest you contact us and we will prepare these figures for you. We are independent financial advisers who are experienced and comfortable in this market. We are able to find the best annuity rates very quickly indeed.

We believe it is very important to shop around as rates vary dramatically. We believe the difference between the best and the worst can be as much as 25%. Even difference between companies in the top ten can be significant.

Rates have fallen dramatically over the last decade. Annuity rates are largely determined by gilt rates. At the moment there is substantial demand for government backed gilts and therefore prices have risen and yields have fallen. This means annuity rates have fallen. This combined with low inflation and low interest rates lead some analysts to believe annuity rates are unlucky to rise in the near future.These change daily and we would suggest you contact us for a quote.

Standard or conventional annuities are the most secure because they pay out a guaranteed income until death. If you build in a widows pension option into this, the income offered from outset will be lower. Likewise if you opt for an inflation linked annuity it will broadly speaking keep up with inflation but you will receive a lower income at the start.

For with profit annuities the income you receive is linked to the performance of the insurance company's with profit fund. As the capital is invested in stocks and shares the income will vary according to performance. You can opt for a guaranteed annuity which will provide some security as the income will not drop below a pre set floor.

Unit linked annuities are aligned to the insurer’s unit linked funds. It is possible to switch funds around to take account of changing market conditions. Your income is more likely to fluctuate than with profit funds as there is no “smoothing” effect – with profit funds keep money back in the good times to pay out in bad years. This gives a less volatile return.

With an income drawdown policy you can take up to 25% of tax free cash from your pension and leave the balance invested thereby delaying the purchase of the annuity and giving rates the chance to improve. You must purchase the annuity before you reach 75. You control how the fund is invested during this time. Whist this approach for some investors may be suitable, we at City Investments feel it probably the most risky option. The money remaining invested must grow in order to make the system work. As there is little in the way of guarantee of this growth and you are withdrawing from the fund each year for income we are concerned that the fund may actually go down in value. There is also no guarantee that annuity rates will rise in the future. As a result of our concerns on the above we have decided not to offer advice on this option.

Purchasing an annuity is one of the few areas in financial advice where you can actually benefit from being in bad health. It is possible to get better rates from a handful if specialist providers who are sympathetic to those who are obese, suffer from an illness, have had a heart attack or stroke, cancer or smoke.

Careful independent financial advice is needed here. The advice provided will depend upon your personal circumstances and will as a result vary from client to client. Your attitude to risk is very important to consider.

If you are not prepared to take any risk the best available standard rate on the open market is probably the most appropriate course of action. Do remember however that with annuity rates at such low levels, standard annuities offer no possibility of income growth. The rate is fixed until you die.

If you are prepared to be more adventurous a with profits annuity is worth considering as the possibility for income growth is better

To establish whether we can help please call

01244 317788