Frequently Asked Questions

Answers to the most commonly asked questions

What is an annuity?

In simplest terms, an annuity is created by a pension and is the mechanism that will provide an income for the remainder of a retiring person’s life. It is how a pension is used to create income. It can be purchased using the income that has been placed into the pension.

There are a number of factors that change how the annuity pays and at what rate, but these detract from the simple nature of what an annuity is and how it is used. The best way to decide upon how to use an annuity is to seek the help of a qualified analyst. It is how the highest level of income can be derived and it is by far the best way to make this transition.

Flexibility?
There are a vast number of factors that can change the way that an annuity pays and there are a vast number of changes that can be made. To purchase an annuity in an “over the counter” method could and usually does mean a high loss of income in the end.

Income levels can be raised and lowered through various mechanisms and these are not secrets, but they are not something that most people can understand right off the bat. That is why it is necessary to sit down with an analyst that has the time to look at the situation and explain the different options that are available.

Do I need to buy an annuity?
In order to receive funds from your pension, you do not have to necessarily have an annuity. There are rules and laws that apply, but many of them changed as of April 6, 2006. These rules can apply to anyone that is making changes to their annuity status from April 2011 onward.
Are there alternatives?

Unsecured Pension and What it means
(Also known as Pension Fund Withdrawal)

This is an option that can provide a much higher return, but there are many options and restrictions built into the system.

While it is possible for almost any person to use this option, there may be an income borderline that has to be passed in order to use some companies. It is not a matter of you can and cannot use this option, it is a matter of whether the current pension company will allow such changes. This is an option that is open to anyone, but there may be some changes that have to be made before the addition of this option can be made.

Alternatively Secured Pension and What It Can Do For You
At the age of 75, there is the option of a USP or ASP and there are a few differences that make one or the other a better choice

•The upper limit is a little lower for the ASP
•The funds of the ASP are investment based and this comes with an element of risk involved.
•Death during the ASP period makes for a particular transfer type to another person, as opposed to the regular transfer that was set up during the purchase of the initial annuity as follows

Provision directly to the dependent or named spouse under or above the age of 75

During the initial transfer there are no taxes paid. However, if an additional level of transfer is needed due to the death of that dependent, then the unused funds will be taxable.

The level and type of use of the funds may require that an additional tax be paid.

 

What are my options with an annuity?

Single Life Annuity—This is an annuity that is designed for only the person named on the annuity. This excludes dependents and spousal partners. Anyone that no need or desire to pay out any income to anyone other than themselves will be in this category.

Once the named annuity holds dies, all income derived from the annuity will end.

Joint Life Annuity—this is designed for those that are either married or in a partnership relationship or to those that have a single dependent that they wish to pass income on to. At the time that the annuity holder dies, their benefits are moved on to this second person and these payments are paid out in what is usually a fixed income.

Level Annuity—this is a simple pay system that will pay one fixed amount, at a fixed time rate for the rest of the life of the person that holds the annuity.

‘Escalating’ or index-linked annuities—this is a system that will increase the income that is derived from the annuity over time. There are various ways that the income can raise, most of the time it is a fixed percent per annum. However, the increase can be connected to the pricing index of the country or the pricing index of relative marketing power.

This can result in a lower overall income level in the beginning, but will cover itself as time goes by in keeping with or near the inflation rate.

Guarantee period -this is a period that begins on the date of purchase of the annuity. It is typically five years and means that if the purchaser dies within that five year period, the income will continue to the end of this chosen “period It can be increased to something like , but this will lower the overall income level of the annuity.

‘Impaired life’ or ‘enhanced rate’ annuities—these are specialized annuities that pay higher income based upon a medical condition or lifestyle choice. For example, this may be an annuity that pays a greater income based upon the fact that a person smokes or is obese.

It can also be affected by things such as the career choice that the person made or the area that a person lives in. All of these can affect the income in a positive way.

Investment Based Annuity—this is as the name implies an annuity that derives the income from investment choices. The choices can be made by the annuity company or by the purchaser. While there are inherent risks in choosing this type of annuity, there is the chance that these will be pay out higher in the end. Like any other income that is based upon an investment, there are chances that the income could disappear altogether.

These choices do not have to apply to the entire annuity and that can hedge some of the risk that is involved.

Income Draw Down
This is a choice that entirely pension based and does not use an annuity. There are many chances that this can fail and the income that is drawn from the pension will cause the overall to drop in some cases. There are many changes that are taken by using this approach, but some feel that the options are less limited than with an annuity.

Do I have to accept an offer made by the pension company?

The Open Market is a set of rules that simply states that a person has the right to take their retirement and check for the best deal. This gives the retiree the most options and allows them to be selective in how they retire. This also gives them time to make their choices and gives them the ability to access the information themselves through an analyst and understand the choices that they are making prior to diving in and choosing the way to handle the future.

Glossary of Terms - What key words mean

Annuity Quote—these are the various quotes that put together for you based on your given situation. They are based upon the open market and that means that you are getting every possible payment option there is and not a select number of quotes that some companies provide.

Annuity tables—these are the same as the annuity quotes, but in an easier to understand format. They provide some of the information that the quotes are derived from and they format the information so that you can make an informed choice without poring through pages and pages of information.

Compare Annuities—once you have gotten all of the quotes from your information, it is time to compare them and that is what is happening at this point. This is where you will see the difference between the different companies and what they can mean to your overall future.

Best Annuity Quote—this is the one that will stand out from the rest and it is most likely the direction that you will want to go in. It will have the best of the best that an annuity has to offer and it will most likely be the choice that you make in the end.

Best Pension Provider—this is similar to the best annuity, but it is where the income comes from for the annuity. It may or may not be the pension provider that the purchaser has been using during their work history, but it will be the one that provides the highest level of end income in the best way possible.

Annuity Rates Calculator—this is where all your information comes to life. The rates calculator will also order the information that is provided so that your best options are more readily available than the rest. Think of this as the mechanism that can show you the best path or set of paths to choose from.

Want more information?

Retirement options should never be decided on a whim, they deserve careful consideration. We believe that all our customers should receive the same service and options that we ourselves want in our retirement. If you’re unsure about what is right for you, or you simply want further information to help you make the right decision please talk to us.

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