We asked our Annuity Specialists to cut through some of the complexity of annuities, challenging them to put together a mini-guide to two of the main types: lifetime and fixed term annuities. To make it harder for them (but easier for our readers) we asked them to do it in under 400 words. Here’s what they came up with…
The essential difference is clear from the names of each product. A lifetime annuity pays a guaranteed income for the rest of your life. A fixed term annuity pays just for a fixed period of time. However, there’s a little more to it than that.
There are two main types of lifetime annuity. First, a level annuity pays the same level of income forever. It offers the largest starting level of payments but over time they will be worth less in real terms due to the effects of inflation.
An escalating annuity starts at a lower amount than a level annuity. Payments then increase annually in line with inflation or at a specific percentage set at the start of the plan, for example 3% per year. You get some protection against inflation, but it can take 20 years or more before the total income you will have received matches what the level annuity would have paid out in the same period.
A fixed term annuity pays an income for a term of your choice between one and 25 years. Fived and ten-year terms are the most popular choices for our clients.
After taking up to 25% tax-free cash you have a choice of:
This type of annuity can be suitable if you want to leave your options open rather than committing now to an annuity for life. It could also be chosen if you expect future annuity rates to rise, potentially benefitting by arranging an annuity in a few years’ time at a higher rate. (Being older by then will itself attract a higher rate, although of course rates in general could be lower.)
A lifetime annuity can be offered on an enhanced basis to provide additional income. An enhanced annuity may be available if you have been diagnosed with an illness, have other health problems, or if your lifestyle includes habits such as smoking or drinking.
As well as the choice between a level or fixed term annuity, you can also look at options such as adding death benefits to your annuity. Retirement Line’s Annuity Specialists are here to help guide you through your options.
Please contact us on 0800 652 1316 or firstname.lastname@example.org if you would like information and guidance, including quotes to find out what level of retirement income you could achieve.