You usually get only one chance to decide who will provide your pension and, since it determines your income for the rest of your life, it's not a decision that should be taken lightly.
There are many pension providers offering retirement annuities so it makes sense to shop around for the best deal, choosing one who can offer you the highest income from your investment, this is where exercising your Open Market Option comes in. Whilst the majority of annuities are based on standard rates, Partnership recognises that a significant proportion of people simply do not fit the 'standard' mould and aims to offer them a much better deal than they might get elsewhere.
Why your health is important
If you have a health condition that is expected to reduce your life expectancy or you are a smoker, you could qualify for an 'enhanced' or an 'impaired life annuity', an annuity that pays out a higher rate of income than you might get elsewhere because it's based on your actual life expectancy, rather than the average for your gender and age group. It's estimated that up to 40% of the retiring population are eligible for higher rates due to their health.
Partnership's retirement annuities have been designed specifically for this 40% group. We automatically underwrite the second life too, which means that if the main annuitant is healthy but their partner has a health condition or is a smoker, they could still qualify for enhanced rates…
… and the differences can be significant, as the table below illustrates.
A 65 year old male with a pension fund of £50,000 and moderate health conditions for their age could receive £143 per month more than with the average conventional annuity. Over a 15 year life span, this equates to £25,740 in additional income payments.
Annual income for a purchase price of £50,000 net of the Pension Commencement Lump Sum
| Male aged 65 | Male aged 65 | Female aged 60 | Female aged 60 | |
|---|---|---|---|---|
| Severity of health conditions |
Conventional annuity per annum |
Enhanced annuity per annum |
Conventional annuity per annum |
Enhanced annuity per annum |
| Mild | £3,400 | £3,636 | £2,801 | £2,980 |
| Moderate | £3,400 | £4,327 | £2,801 | £3,358 |
| Severe | £3,400 | £9,759 | £2,801 | £8,883 |
** Source data: Partnership's rates as of 30/11/07
Choosing the most suitable option
Pension Annuity
A Pension Annuity is purchased with the proceeds of your pension fund. In exchange for a single payment, you will receive income guaranteed to be paid for the rest of your life.
Suitable if:
- You have a maturing pension fund and are looking for the security of a regular income
- You are living with a health condition and want to maximise your income in retirement
Or
- You are a smoker, over the age of 50, who has smoked more than 10 cigarettes a day for the last 10 years or more
Please note that smoker rates are only available for Partnership's pension annuity.
Purchased Life Annuity
Just like a Pension Annuity, for a single lump sum payment, you can guarantee a regular income for the rest of your life. However, the funds for a Purchased Life Annuity must come from a private source and can include the Pension Commencement Lump Sum element of your pension savings.
Suitable if:
- You have built up a private fund and want to receive an extra income prior or in addition to receiving your main pension
- You are living with a health condition and want to maximise your income in retirement
Personal Pension Transfer Plan
If you wish to take the Pension Commencement Lump Sum from your pension fund but your existing pension scheme is unable to pay this out, you can have your pension savings transferred into our Personal Pension Transfer Plan, which acts as a vehicle for releasing the money to you. The remaining funds will then be used to purchase a Pension Annuity.
Suitable if: You want to withdraw up to 25% of your pension savings tax free as a Pension Commencement Lump Sum, but your existing provider is unable to pay this out.
Protected Rights Annuity
If you have contracted out of the State Earnings Related Pension Scheme (SERPS) or Second State Pension (S2P), Protected Rights is the amount that would have been paid to you had you not contracted out. You can take your Pension Commencement Lump Sum from this amount, if you wish. Any amount remaining must be used to purchase a Protected Rights Annuity. If you also choose to purchase a Pension Annuity, we will combine it with your Protected Rights Annuity and wrap it up in one convenient income payment, payable for the rest of your life. Suitable if: You have contracted out of SERPS or S2P and have built up funds in either your employer's pension scheme, a stakeholder pension scheme or a personal pension scheme.
The following three options are available on both the Pension and Purchase Life Annuity.
Guaranteed Period
It's understandable for people to be concerned that they won't get value for money if they die during the early years of purchasing their annuity. Choosing a Guaranteed Period of up to ten years from the commencement of the policy ensures that the income will continue to be paid to your beneficiaries if you die during this time. The longer the guaranteed period you choose, the lower your income payment will be.
Escalation
In order to help ease the effects of inflation you can, when you buy your annuity, choose to increase - or 'escalate' the income you receive over time. Income can be escalated by a rate of between 1% and 10% per annum. If selected, your level of income will increase on your policy's anniversary date. Escalating your benefits will result in a lower annuity at the start of the plan.
Dependant's Benefit
Both the Purchased Life Annuity and the Pension Annuity allow you to choose for your spouse or civil partner to receive up to 100% of your regular income in the event of your death, for the rest of their lives. The greater the percentage you select, the lower your income payment will be. If you have a spouse or civil partner when you buy your annuity, a 50% Dependant's Benefit is automatically allocated to any Protected Rights element.
The following two options are available on the Pension Annuity only.
Value Protection
Working on similar principles to decreasing term assurance, Value Protection allows you to protect up to 100% of your initial investment until the income paid by your annuity exceeds the amount protected, or you reach your 75th birthday, whichever is sooner. The higher the percentage you choose to protect, the lower your income payment will be. Please note that it is not possible to choose both Value Protection and a Guaranteed Period.
Retail Price Index (RPI)
The Pension Annuity also has the option of linking your level of income to the RPI. If you choose to do this, the amount you will receive will be based on the 12 month movement in the RPI as at three months prior to your policy's anniversary date, with the adjustments coming into effect on the anniversary date. Please note that linking to the RPI could increase or decrease your payments over time: in the unlikely event of negative inflation (deflation), your income would be reduced and could be lower than it was at the outset of the policy.