Frequently Asked Questions about Annuities

Do I have to purchase an annuity through my existing pension provider?

No. You can obtain a higher annuity rate by taking the 'open market option' and purchasing your annuity through an alternative provider. By shopping around on the open market, you can find huge variations in annuity rates. Our quotation system can help you to do this, since it compares the rates of the leading providers of annuities in a quick and simple quotation. You can then compare this with the annuity rate offered by your existing pension provider to see whether it compares favourably.

Do I have to take an annuity?

No. You can draw your retirement income directly from your pension fund if you wish to. There are various different ways of doing this- such as Income Drawdown, Phased Retirement and Phased Drawdown. It is important that you understand these options and the consequences and disadvantages of them before deciding that an annuity is the best option.

Where can I buy an annuity?

Having obtained your annuity quotation, you can easily download the application forms and complete them. If you choose to proceed we can handle the administration for you.

Is there a difference between annuity providers?

Whilst the decision regarding which provider to select is often rate driven, there are a number of other aspects you may wish to consider. Financial strength is an aspect that you may want to take into account considering your annuity may need to be paid for life.

Can I get a better annuity rate if I'm a smoker?

If you smoke cigarettes regularly you need to disclose this when completing a quote as it may qualify you for an improved annuity rate.

Can I get a better annuity rate if I suffer from an illness?

Some illnesses do qualify you for an enhanced annuity rate. These are called "Impaired Life" Annuities. Please refer to our Impaired Life Annuity section for more on this. Much depends on the impact that a diagnosed illness will have on your life expectancy. For instance, Alzheimer's is not life threatening, whereas diabetes or high blood pressure can have a significant impact on your longevity and this is reflected in more generous rates offered by Impaired Life Annuity providers. For a list of illnesses which are likely to qualify for an uplift, please refer to our list of conditions.

What is a purchased life annuity?

A purchased life annuity is an annuity purchased with your own money, as opposed to a pension fund you have built up. This is often bought with the tax free cash lump sum component of a pension. Please refer to our Purchased Life Annuity section.

What is income drawdown?

Income drawdown, sometimes referred to as Pension Fund Withdrawal is where you draw your income directly from a pension fund, which remains invested, as opposed to buying an annuity. There is no minimum income amount that has to be drawn and the maximum is 120% of the annuity that could have been purchased on the open market.

What is alternatively secured pension?

Alternatively Secured Pension is a form of income drawdown after the age of 75. If you decide not to by an annuity before you reach 75, the residual funds remain invested and you can draw an income directly from the arrangement. However, the maximum and minimum income limits for ASP are more restrictive than for income drawdown- The maximum income limit is 90% of the annuity that could be purchased on the open market at age 75 and the minimum is 55%. These amounts are reviewed yearly.

Can I alter the contract once I have taken out an annuity?

Once you have bought a conventional annuity you cannot transfer it to another annuity provider or change the options you selected from outset. Hence it is vital that you consider which options you require before setting up the annuity.

What would happen if I died after taking out an annuity?

This depends entirely on the death benefits you select when you take the annuity out. If you have selected a guaranteed period or spouse's benefits, then the annuity will either continue for a fixed period of time, or until your partner dies. For more on death benefits, please refer to our Annuity Options page. Prior to taking out the annuity, you can find out the effect that adding guarantees and spouse's benefits has on your initial income by using our annuity quote system. It is essential to consider what retirement income your spouse or partner has in their own name prior to setting up the annuity.

How long does it take to arrange an annuity?

Annuities are very quick to set up, but are often subject to delays from the ceding pension company who can take a considerable amount of time to transfer the funds to your chosen annuity provider. On average an annuity takes between 5 to 10 weeks to set up. Where delays occur we will offer to assist you by contacting the ceding scheme or the trustees to ensure a swift settlement. Delays tend to occur where an occupational scheme has trustees who are not full time pension professionals and do not provide the correct information to the annuity providers.

Is my annuity rate guaranteed?

Once a conventional annuity is set up, then the rate is guaranteed for life. However, during the period of time between receiving an illustration from the annuity provider and the funds being released from the ceding scheme, annuity rates may change, forcing annuity companies to change their rates. The majority of quotes are guaranteed for two weeks, but if the pension has not been transferred from the ceding scheme to your annuity provider during that guaranteed period and annuity rates have changed, then the income your receive from your annuity will also change. If this income is significantly less than you were quoted, the annuity provider will issue a final quote for acceptance. If you do not accept this quote, we can assist you in sending the funds back to the ceding pension provider and on to another annuity provider, if there is a clear benefit in doing so. This is because all of your options are still open until you accept the final quotation.

Do I have to take tax free cash?

No, you can elect for all your pension fund to be used to purchase an annuity. However, many prefer to take the maximum tax free cash and invest this separately into investment vehicles which can generate an income- such as investment bonds or ISAs. Much depends on your attitude to risk and if you are in any doubt as to which option is most suitable, we would urge you to seek advice.

How is my annuity taxed?

Your annuity will be taxed at source, under Pay As You Earn. For more on annuity section see our Annuity Taxation section.

Where can I find out more about annuities?

See our Annuity Useful Links section for more information about the taxation of annuities, voluntary help groups for pensioners on low incomes, how to reclaim excess tax paid by annuities and regulatory organisations. If you encounter technical jargon, please refer to our glossary of annuity terms. For product brochures, key features documents and application forms, please refer to our annuity literature library.