Retirement Annuity Contract – What is an annuity?
Retirement Annuity Contract
A retirement annuity contract is a form of retirement fund scheme alternative to capped income drawdown and flexi access drawdown pension schemes.
Annuities are classed as secured pensions because the income amount that your receive annually is guaranteed for life. Pension drawdown schemes are designated as ‘unsecured pensions’ (USP).
Entering into a retirement annuity contract is essentially a once over deal (with the exception of fixed term packages). Careful consideration and expert advice before buying an annuity is essential as the income you receive is set forever.
Types of Annuity Retirement Contract
A conventional retirement annuity contract is the regular (standard) package that many people purchase with a retirement fund. Extra benefits can be added to the annuity, these will incur extra costs which will affect your level of income.
Your personal health can allow you to purchase an enhanced annuity at a higher rate of return income. Lifestyle choices also have an effect on the income value. Over a 1,000 medical and lifestyle conditions can be considered and may yield and increase of upto 30% more than a standard retirement annuity contract.
Open Market Option
Your current pension provider my offer you a retirement annuity contract known as a ‘Pension Lifetime Annuity’. You have the freedom to explore the entire market to find a more suitable contract which more often than not yields a higher annual income return, this freedom is known as open market option.
Profit & Investment Annuities
Your annuity pension income is linked to the performance of the annuity insurance company. There are 2 distinct parts, the minimum starting income and the bonuses. The starting income is the least amount of income you can expect to receive (base level income). Bonuse rates are of course dependent on the performance of the insurance company in the stock market.
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This annuity is linked to the performance of investments. It can mean a potential increase of income each year as the performance of the investment improves. This approach can help to nullify the effects of inflation.
This type of retirement annuity contract is more flexible allowing a person to keep their options open. At the early stages of retirement you may need to protect your income level perhaps because you have dependents. There are still some income guarantees with a variable rate annuity.