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Annuity Help

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How can I make sure that my spouse and benefactors are still looked after in case I die before my annuity has been fully paid off?
A Joint Life Annuity with your spouse or another nominee would be your option for situations like these. This type of annuity guarantees that if the main holder dies, part of the income is paid to your partner for an agreed period of time.

Compared to a single life annuity, the payment period will be longer, hence there is a small penalty to the initial payment setting. When the first partner in the annuity dies, the payout rate to the surviving person is usually a lot less than the starting rate. You can usually negotiate this figure to be between 50 to 70% of the original annuity rate, ensuring that your loved one is taken care of after you pass away,

What alternatives are available for my loved one’s security?
You can avoid the income penalty of a Joint Life Annuity by negotiating an acceptable guarantee period with your provider. This will safeguard your estate from losing its investment upon your premature death.

For instance, should you purchase a lifetime annuity at the age of 75, and die a year later, this money would be lost by your estate to the annuity company if no guarantee period was in the contract. A guarantee ensures that should you die before a certain time, anything payable to you will instead be paid to your estate for the period of the guarantee. Often this is five years, but it can range up to ten years or even more.

It is very important to check whether a guarantee period is available when purchasing any type of annuity. Most annuity companies offer guarantees, though terms and conditions will vary between them. Some providers will pay out a lump sum (usually a percentage of the original annuity payment). Other companies pay out the normal amount for an agreed period while others will pay over a decreased duration.

I’m not likely to live much longer but I still need an annuity as part of my pension plan. Won’t my lump sum go to waste since I won’t be around long enough to receive much of the benefit?
This is a common concern among people purchasing an annuity late in life, but the good news is that it shouldn’t be a problem.

There are different types of annuity depending on the circumstances of the buyer. Regular pension annuities’ payment rates are calculated using the average life expectancy and the age of the annuity holder. However some people may have health problems, or a lifestyle situation that impacts longevity so this is not suitable for everyone.

A special kind of annuity is available for smokers, drinkers, or those who otherwise have poor health. Enhanced Annuities and Impaired Life Annuities are sold to those with lower life expectancy. These pay out more in their regular payments compared to a normal annuity.

How do I get an Impaired Life Annuity or Enhanced Annuity?
Inquire with your annuity provider for information on their policies. You may not be required any further examination from your doctor if a diagnosis has already been made but you will usually be asked to provide a medical certificate. Rules vary from provider to provider, but medical certification is often required, though you can be certified retroactively.
You may not even need medical approval in some cases. There are providers that offer Impaired Life Annuities for those who worked in a manual labour sector all their lives, for example, or worked in unhygienic conditions, or even just lived in the North of England. Check around for the best deal but keep in mind that you’re entitled to the right annuity for your circumstance and lifestyle.

How do providers make enough money to pay these annuities, if they’re paid indefinitely and in large amounts to those with poor health? Is my income really guaranteed?
Yes. Annuities have a long and distinguished history in financial affairs as a stable form of investment. In the UK there has yet to be a known case of a provider defaulting on its payments to an annuity holder.

This is partly due to the Mortality Cross Subsidy system. This refers to money crossed over into consumers’ annuities from leftover sums deposited by other consumers who are no longer claiming annuity payments because they have died. When an annuity holder dies, the remainder of his or her investment will go towards other annuities.

Large annuity companies usually have thousands of customers, so there’s more than enough money to go around. Additionally, they are often backed by larger financial conglomerates, thus even in the £6bn a year annuity industry, there is virtually no danger of losing your money through anything except early death.

Will my pension provider also supply my annuity?
Pension providers can also sell you an annuity but do not rush into any purchase with them. Pension providers are legally obliged to tell you that you can go elsewhere with your lump sum to secure the best possible payment plan.

Consult an independent financial adviser, browse rates on the Internet, or contact providers directly to be sure that you can find the right annuity for you. Be ready to ask and answer questions – companies will need to know your medical condition and how much you can set aside as a lump-sum – while you will want to know what options they offer. Be sure to compare prices and pay-outs between providers before making a decision.

What if I have more than one pension plan and/or provider?
You may be able to combine these into one lump sum for your annuity. Consult an independent financial expert, as the answer will vary depending on fast-changing legislation, your provider(s) and your circumstances.

Can I cancel my annuity and get a refund?
In the UK, retirement annuities cannot be cancelled and your premium cannot be refunded. The premium that you give belongs to the company you entered into the agreement with. They fulfill their obligation by paying the agreed regular payments. There’s no going back once you’ve paid for an annuity so it is important to choose the right one.
Some investment annuities and split annuities may offer a buy-back option, often known as cashing in or cashing out your annuity. This is uncommon and will result in penalties being payable (you might only receive 80% of your remaining lump sum), and may raise tax issues. Contact your financial adviser for more information.

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