Annuity Overview

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I want a standard pension annuity quotation (includes fixed and variable rates).
I want an impaired life pension annuity quotation (includes fixed and variable rates).
I want a smoker pension annuity quotation (includes fixed and variable rates).
I want a purchased life annuity quotation (not for pension funds).
I want a quote for an immediate care annuity.
I want a quote for long term care annuity.
I want to discuss my annuity options with a financial adviser (no obligation).
I want advice regarding a pension transfer.

Annuity Overview

Annuity overview supplied by UK IFA NET Ltd

Many people in the UK assume that their money purchase pension plan automatically starts paying for their pension at retirement. This is not the case.

What your UK pension plan does provide is an accumulated fund of money, a pension fund. Part of this (usually up to 25%) may be taken as a tax-free cash sum immediately on retirement. The rest must be used to provide your pension income.

There are a few ways in which you can use this fund, the most common of which is to purchase an annuity. Put simply, an annuity is an income, provided by your UK pension fund, that is payable for the rest of your life. It is paid by an insurance company or similar specialist company, in exchange for your pension fund.

Some retirees also ask their adviser to use their tax-free cash sum (or any other available cash, for that matter) to purchase what is called a purchased life or immediate annuity from a top paying annuity provider. This type of annuity also pays you an income for the rest of your life, but the income is only partially taxed.

There are a number of factors that influence the return you will get from your annuity. The most obvious of these is the size of your pension fund. The bigger your fund, the bigger your annuity income will be. Another major factor is mortality. Mortality is the calculation of the age to which you are expected to live. Because women tend to live longer than men, the company paying the annuity expects to have to pay woman for longer. Hence, women receive lower rates than men of the same age. Further information will be given with supporting data about the factors that affect income later on in this guide.

Your brief guide to Annuities from UK IFA NET Ltd

Currently all UK residents with a pension composed of money purchase pension fund (ie a personal pension, stakeholder pension, section 226 retirement annuity contract, free standing additional voluntary contribution or money purchase company scheme) usually use their fund to buy an annuity, although the final date of purchase may be deferred to age 75.

The mechanics of annuities are fairly simple. The basic principle is that the annuity provider pays you an income for life in exchange for your pension pot. Some people consider that the traditional annuity arrangements are a little unfair in that the annuity stops when you die and the underlying fund is lost. This means that those people who only live a short time after taking their annuity effectively subsidise those who are fortunate enough to live longer.

(Unless you have selected the joint life option or the guarantee option. For more information on the options available visit the annuity options page)

Annuity rates are affected by a number of variables, some that you have no control over, such as age and gender, and the additional annuity options that you may choose to select such as "index linking" or guarantees. As a rule of thumb the older you are the higher the annuity rates offered. This factor alone is sufficent for some people to consider one of the alternatives to the standard annuity contract such as income drawdown

It may not always be apparent but you have a legal right to purchase your annuity from a company other than the one that holds your pension fund. This is known as the open market option or OMO. It also makes good financial sense to compare the annuity rates available from the the other providers.

Most people opt for a standard annuity, and we would recommend that before getting a quote, you research the various options available with a standard annuity. To check out your annuity options click here

To research the alternatives to the traditional pension annuity, click here or use the navigation bar on the right to explore the site.

UK IFA NET provide fully independent Annuity Advice for your individual requirements. Simply click for a quote. Alternatively speak to one of their highly experienced consultants today on 0845 365 2410 quoting ref WS9 or fill out our online quote request form and one of their advisors will contact you.