An annuity sounds complicated, but it really isn’t and if you are over the age of 55, it could change your life for the better.
What Is An Annuity?
An annuity is a process of protecting your income through a long-term investment issued by an insurance or annuity provider. The main aim of an annuity is to provide you with an income during the time of retirement and in exchange for this, you will hand over your pension pot to the provider that is going to issue you with the monthly income. The monthly income will be issued for the entire duration of your life or for the period agreed with your lender and the amount you receive will be based on the agreed annuity rate.
There are a few different types of annuity and at My Pension Expert, we will ensure you are put on the right plan for your personal needs through the guidance of our annuity specialists.
Your retirement income is based on an anticipated growth rate of the funds you invested at the beginning of your plan, these funds are then invested on your behalf in the stock market. The rate will be in constant review and a bonus rate will be calculated. Your income will subsequently be affected by the base rate, so if it increases, the monthly income you draw may go up and if it goes down, your income can decrease too. Fear not, your annuity will be set to a minimum rate that it can decrease to and do bear in mind that if the rate increases, your income will too. Much like the nature of investments, it will be out of your control to an extent, but the risk is often worth it.
Perhaps the more popular form of an annuity, a lifetime annuity is a fixed, regular income in place for the duration of your life. The income is based on the amount you had in your pension fund upon starting the annuity process. However, it is also influenced by more personal factors, such as your age and medical history. If you are someone who would like to know exactly how much you will be receiving on a monthly basis for the rest of your life, then a lifetime annuity may be your preferred option.
Much like a lifetime annuity, the monthly income you receive will be a fixed amount, the difference with a fixed term annuity being that you decide how long you want to receive the income for, which can be anything from three years upwards. As well as the income amount, you are also entitled to the tax-free lump sum from your retirement fund, should you need it. At the end of your annuity term, a Guaranteed Maturity Amount (GMA) is paid and the option will be there to use the GMA to buy another annuity, based on future annuity rates (which could be higher). If the thought of being tied into a deal fills you with a slight sense of discomfort, then you may want to consider the more flexible option of annuity – fixed term.
If you have suffered an illness or health issue, then being completely transparent means you could receive a higher income
Some providers adopt the view that having a medical issue can shorten your life expectancy and therefore, you may be entitled to a higher income through an enhanced annuity.
Being transparent about your lifestyle habits could also see you in a better situation regarding your annuity.
Thanks to a customer’s open discussions with us, we helped him secure an extra 26% income for the rest of his life. He did this by simply sharing information about his weight, where he lives, his occupation and how much he smokes each day – being open and honest pays off.
Factors such as the severity of your illness, the treatment you receive and the date you were diagnosed will influence the amount you receive through your enhanced annuity, so again, being transparent is the best thing you can do.
Being completely transparent regarding your medical history is important in any respect, but particularly during an annuity application. Why is it so important? Well, if you have been unfortunate enough to suffer from a medical condition that will decrease your life expectancy, then providers can increase your income to make up for the reduced term of your life.