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Annuity Basis

An annuity can be taken to suit your personal circumstances. The options you choose will affect the amount of income you receive from the annuity. For example, a higher income would be received if you took the annuity on a single life, no guarantee, no spouses option basis than if you took it on a joint life, 10 year guarantee with 100% spouses option.

The options available by which you can take your annuity are as follows;

GUARANTEED

You have a choice to guarantee the income you receive from an annuity for 5 or 10 years. This means that if you have a partner and you choose a guarantee of 10 years and you die after 7 the annuity will continue to pay the same income for another 3 years, after your death. Or if you are single it will pay the remaining years into your estate.

SPOUSES OPTION

A spouse's option reduces your initial income to allow an income to continue to your partner in the event of your death.

This can be chosen on a;

• 50% basis - your partner will get 50% of what you receive after you die (1/2)
• 66% basis - your partner will get 66% of what you receive after you die (2/3)
• 100% basis - your partner will get 100% of what you receive after you die (All)

The spouses option will continue to pay an income to your partner for life.

LEVEL OR ESCALATING

A level annuity will continue to pay the same amount of annuity for the rest of your life. An escalating annuity allows you to choose a lower initial annuity income which will gradually increase as the annuity continues to pay out. There are two types of escalating annuities that you can choose from

1. FIXED RATE ESCALATING ANNUITY - This is where your income is guaranteed to increase at the amount you have stipulated every year. This can range from 1% to 5%
2. RPI - This is where the escalation is in line with the retail price index. In escalating annuities, you should be aware that because level annuities pay a much higher initial amount, you could take up to 20 years with an escalating annuity to get the equivalent of what you will be getting with a level annuity

WITH OVERLAP

Overlap is a joint life policy guarantee on it. If the main annuitant were to die within that guaranteed period, then the spouse would continue to receive the main annuitant’s pension as well as their own. At the end of the guarantee they would get the spouses pension only. For example, a policy is set up with a guarantee of 10 years and 50% spouses option. The annuitant dies in 5 years, then the spouse will get their 50% pension as well as the main annuitant 100% pension for a further 5 years of the guarantee.

WITH PROPORTION

If you were to die during a month and were due to receive an annuity payment at the end of the month, you would still be paid the amount up to date of death. However, if you didn’t have this added on then the payments would cease on the day of death and no payment would be received.

VALUE PROTECTION

This is where on the annuitants death, prior to their 75th birthday, a lump sum will be paid back. From the original purchase amount, the total gross annuity payments to date of death will be deducted and then on the remaining amount there will be a 35% tax charge applied. On a joint life basis you can take it either on

• 1st life basis - on a joint policy if the main annuitant dies before their 75th birthday, then the value protection would be paid out and the spouses option continue on whatever basis it was set up
• 2nd life basis - if the second annuitant died before their 75th birthday then the value protection would be paid. In this case the value of the spouses payment would take into account the total gross payments and this would be taken away from the total purchase price. The value protection would only pay up to the annuitants 75th birthday. If the last survivor lived beyond that then no lump sum would be paid out

MONTHLY IN ARREARS OR ADVANCE

In advance - This is when your payments will start almost straight away upon receipt of funds by the annuity provider. In this case, you should receive an annuity payment about a week after your annuity has been set up.

In arrears - This is when you will receive a payment a month after receipt of funds by the annuity provider.

You don't have to take the option of monthly; you can also take annually, bi-annually or quarterly.

For more information about your annuity options simply complete the enquiry form or call us today on 0845 676 1010 to speak directly to our experienced annuity advisers.