You don't have to buy an annuity from your pension provider and it often pays to shop around. Call us for a quote and see how we compare.
We’ve tried to define a number of the annuity-related terms that you might not have come across before. Where possible we’ve tried to define these terms as we use them on the site but we hope this is helpful for quick reference.
Annual Allowance. Is an upper limit placed on the total value of contributions that can be paid to your pension scheme in any one year and benefit from tax relief. The current limit set by HM Revenue & Customs is £50,000 and includes your employer's contributions as well as your own personal contributions. The Annual Allowance will reduce to £40,000 for the 2014/2015 tax year.
The Annual Allowance also applies to increases to the value of promised pensions in final salary (defined benefit) schemes.
Annuitant. Is the person who receives income from the annuity. Their retirement benefits are used to buy the annuity.
Annuity. Can be bought with the funds from your money purchase pension scheme or your cash equivalent transfer value from a final salary pension scheme. The annuity provider agrees to pay you a pension income for the rest of your life.
Buying power. The value of a particular amount of money, measured in terms of what goods and services it can buy.
Contracted-out benefits. Pension rights built up from you ‘opting’ out of the earnings related part of the State Pension, resulting in a reduction to your entitlement to Additional State Pension. There may be restrictions on how and when these benefits can be taken.
Contributions. Payments made by an individual or their employer to a pension scheme, to build up the pension rights or funds of an individual.
Dependant’s pension. An income paid to a dependant (spouse, registered civil partner or financially dependent partner) for the rest of their life following the death of the annuitant. Dependant's income will be based on the percentage chosen by the annuitant and is subject to income tax.
Enhanced (annuity) rates. These are improved or higher annuity rates offered to an annuitant on the basis of reduced life expectancy in the opinion of the annuity provider. Annuity rates govern how much income will be offered in return for a given lump sum purchase amount.
Final salary (scheme). A pension scheme where benefits are based on length of service and pensionable earnings in the years leading up to retirement. These schemes are established by employers and are often referred to as defined benefit schemes.
Financial adviser. A financial adviser is an individual or company who is authorised by the Financial Conduct Authority to provide advice on financial products and services. It's important to be aware that some financial advisers are restricted to giving advice on the products of specific providers, whilst others can advise on the products of all providers.
Financially dependent. To rely (either fully or partially) on another person's finances. An unmarried partner must prove financial dependence before they receive a dependant's pension (if this has been chosen by the Annuitant).
Financial Conduct Authority (FCA). The Financial Conduct Authority is responsible for regulating the Financial Services industry. It provides information and advice for consumers on its website for a range of financial products and services, including pension annuities.
Guaranteed Annuity Rate (GAR). A specific minimum annuity rate sometimes offered by pension scheme providers to their customers if they buy their annuity from them. The rate guarantee is usually subject to certain conditions. People with GARs are free to shop around for their annuity but the guaranteed rate will normally be lost where they buy their annuity from another provider. Sun Life Financial of Canada customers with Guaranteed Annuity Rates will retain these minimum rights when buying their annuity from Legal & General.
Guaranteed (minimum payment) period. A period following the start date of an annuity during which income continues to be paid, even if the annuitant dies. A period of 1 to 10 years (complete years only) can be selected.
(Price) Inflation. A general increase in the price of goods and services. The Retail Prices Index (RPI) is the primary measure of inflation in the UK and will show as a positive figure during times of inflation.
Lifetime allowance (LTA). An upper limit placed on individuals’ maximum retirement benefits by HM Revenue & Customs (HMRC). Benefits that exceed the allowance will incur a tax charge. The Lifetime Allowance for the tax year 2013/2014 is £1.5 million. This will reduce to £1.25 million for the 2014/2015 tax year.
Money Advice Service. Is responsible for helping consumers understand financial services in the UK.
Money purchase (scheme). A pension scheme to which personal and employer contributions can be invested. At retirement the pension funds built up are used to provide retirement benefits. They are often referred to as defined contribution schemes and include all personal pension schemes.
Negative (price) inflation. A general decrease in the price of goods and services often referred to as deflation. The Retail Prices Index (RPI) is the primary measure of inflation in the UK and will show as a negative figure during times of negative inflation (or deflation).
Open market option (OMO). The right to buy an annuity from a provider other than your current pension scheme provider. Often referred to as 'shopping around' for an annuity.
Overlap. A term used to describe whether payments from a Guaranteed (Payment) Period overlap with dependant’s pension payments. If 'with Overlap' is selected then both can be paid at the same time.
Pension annuity. Pays an income to the annuitant for the rest of their life. Income can be fixed or increasing but won't fall from one year to the next. Pension annuities convert the proceeds of your pension fund into a pension income.
Proportion. A partial income payment for the period between the latest pension instalment and death of the annuitant, for annuities paid in arrears. 'With proportion' means that this partial payment will be made, 'without proportion' means it will not.
(UK) Registered pension scheme. A registered pension scheme is one that has been registered with HM Revenue & Customs under part 4 of the Finance Act 2004. Pension fund savings built up within registered pension schemes are tax privileged and contributions to them will usually benefit from tax relief.
Retail Prices Index (RPI). The Retail Prices Index is the primary measure of Inflation in the UK and is compiled by the Office of National Statistics. The index tracks the prices of a representative 'basket' of (retail) goods and services on a monthly basis.
Tax-free cash sum. A cash lump sum that you are entitled to receive when you first start taking your retirement benefits. You can normally take up to 25% of the value of your pension fund(s) tax free, before using the remainder to provide you with a pension income. It is also referred to as a Pension Commencement Lump Sum (PCLS).
You can only take a tax-free cash sum when your benefits first come into payment. If you don't take it at this point, then it will instead go towards providing you with a taxable pension income.
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Our Pension Annuity helps you to plan for your future with the certainty that your income will never fall.
We could offer you extra income from our Pension Annuity if common health risks like smoking or being overweight apply.
We could offer you extra income from our Pension Annuity if you suffer or have previously suffered from one or more qualifying medical conditions.