The standard type of annuity. A conventional annuity pays a guaranteed income for the rest of your client’s life, regardless of what happens to interest rates or investment markets in the future. It bases the pension income on the client’s assumed life expectancy.
An enhanced annuity provides an annuity income of up to 75% higher than a conventional annuity. The reason is an enhanced annuity reflects your client’s medical history and lifestyle, and the fact that many annuity providers assume they will not live as long as a healthy person.
Around 60% of people qualify for an enhanced annuity. There are around 1,500 different conditions which are relevant. These range from moderate health and lifestyle conditions such as high cholesterol, smoking, excess weight and alcohol consumption to life threatening conditions such as cancer and heart disease. Even certain occupations qualify.
Instead of paying a guaranteed annuity income for the rest of your client’s life, a fixed term annuity pays a guaranteed annuity income only for a fixed period of time, typically five or ten years.
At the end of this period, it then pays a guaranteed maturity amount which can be used to invest in another retirement income product, such as a conventional annuity or enhanced annuity, or alternatively this can now be paid out as cash. This helps your clients keep their pension options open.
Like the first three types of annuity, an investment linked annuity will pay your client a guaranteed annuity income for the rest of their life. The difference is that an investment linked annuity also offers your client’s annuity income the opportunity to grow. This is made possible because the annuity capital is linked to an underlying investment fund.