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!
exactly is an annuity and do I need one?
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.
I need to bother if I have a company pension scheme?
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
I shop around?
You do not have to buy an annuity from your existing pension
company. Once you have got your pension funds 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.
are current annuity rates?
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.
are the different types of annuity?
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 insurers 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.
am in bad health. Will I be penalised?
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.
is best for me?
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
establish whether we can help please call
investments is an appointed representative of the M&E Network Ltd which
is authorised and regulated by the Financial Services Authority. The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily restricted to UK clients.