(A) Annuities – A quick guide
Part 1 of the Annuity Buying Choices and Decisions (ABCD) series from Legal & General
What are they?
Pension annuities (or ‘annuities’) convert the money saved in our pension funds over the years, into a regular income for retirement. A pension annuity provides the promise and peace of mind of an income for life, which is why they’re sometimes referred to as lifetime annuities.
Buying one
Annuity customers are free to buy their pension annuity from the age of 55, although it’s worth them checking whether there are any extra charges on their pension if they’re retiring early. They can normally take up to a quarter of their pension savings as a tax-free cash lump sum first before using the rest to buy their annuity.
They don’t have to buy their pension annuity from their pension provider and like any ‘big’ purchase it really can pay to shop around to see who is offering the best income. This is called taking the ‘Open Market Option’ (or OMO).
There can be a significant difference in the incomes that annuity providers offer. Standard annuity rates, for people in good health when they buy their annuity, can vary by 10% or more. Some providers, like Legal & General, also offer enhanced rates for those people with certain health risks or medical conditions when they buy. Where more serious conditions have developed this could mean up to 40% extra income.
Options and choices
When buying their annuity, people will need to decide how they want their income paid and whether to add certain options, such as an income that increases each year or an income for their partner after they die. Each choice they make will affect the level of income they will receive.
Anyone looking for an annuity should strongly consider seeking independent financial advice before buying, as they won’t be able to change their mind once it has started. Advisers can help people to maximise the income and suitability of their annuity but most providers also offer their annuities direct to customers.
To read the next part of our ABCD series, ‘Before buying an annuity’, visit our consumer website at http://www.legalandgeneral.com/annuities
Notes to readers and editors – This article is intended for consumers.
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