Our Pension Annuity can be bought with the proceeds of a UK registered pension scheme (including any contracted-out benefits) to provide an income for life.
It can also be bought using a one-off personal contribution paid either by your client or their employer.
Before buying one there are a number of decisions that need to be made. Your client will need to choose from a number of payment options. They will need to tell us how they want their income paid and whether they want their income to increase each year or to remain fixed. It will be subject to income tax and will depend on their individual circumstances.
Each of the options they choose, including any optional death benefits added, will impact on the level of their starting and future income.
Each option has a notional cost. These costs are taken into account when we calculate the starting level of income.
The options available to your client when buying their annuity are summarised below:
1) Do they want their income to remain fixed or to increase each year?
They will need to choose either to fix their pension income at its starting level or have it increase each year.
Increases may either be a fixed percentage of between 0.1% and 10% each year or in line with inflation (based on the Retail Prices Index).
A fixed income will have a higher starting level, but will have reduced buying power in the future assuming inflation. The larger the yearly increases requested, the lower the starting level of income.
2) How do they want their pension income paid?
Will the income be paid in advance or in arrears and how many instalments do they want each year? Instalments can be:
Yearly in arrears is the cheapest option and yearly in advance the most costly.
3) Do they want a final (partial) income instalment to be paid when they die?
This is only applicable where income is paid in arrears.
‘With proportion’ is when a final pension payment will be made for the period between the last income instalment and the date they die. If ‘without proportion’ is chosen, then no final payment will be made. This is the cheaper of the two options.
4) Would they like to add a guaranteed payment period?
Pension annuities will normally pay an income for life but payments will stop when your client dies unless death benefits are added.
They can choose to have their income payments guaranteed for a minimum period of up to 10 years. If they die within the guarantee period, payments will continue for the remainder of that period. The longer the guarantee period, the more costly this option is.
5) Do they want to provide a pension for a dependant?
They can choose for their dependant (spouse, registered civil partner or financially dependent partner) to receive a percentage of their pension income after they die.
A dependant’s pension will be paid for the rest of the dependant’s life and will be taxed as earned income. The larger the percentage of income to be paid, the more costly this option is.
6) Do they want their guaranteed payment period and their dependant’s pension payments to overlap?
If they die during their guaranteed payment period and they've chosen ‘with overlap’, then the dependant’s pension income will be paid at the same time as the remainder of the guaranteed payments are paid.
If they've chosen ‘without overlap’, their dependant will have to wait until the end of the guarantee period before they start receiving their pension income. This is the cheaper option.
7) Is their dependant’s pension for a named partner?
If they’re married or in a registered civil partnership, they can decide whether they want a pension income paid to their current partner only (named); or paid to their partner at the time of their death (any).
Named is cheaper but if they choose this option and they re-marry, their new partner will not be entitled to a pension.
If they’re not married or in a registered civil partnership and they want to provide benefits for their current partner when they die, they must name them on their application.
Contracted-out benefits can be used to buy our Pension Annuity
If they buy our Pension Annuity using funds built up from contracting-out of the earnings related part of the State Pension, there may be certain restrictions on how we can pay their income.
You can get multiple quotes based on various combinations of the options above by calling us on 0845 765 4465. These could help decide which options best fit your client’s circumstances and budget.
Monday to Friday, 9am to 5pm
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Please note that the key features and terms and conditions should be issued and read together.