- A tax-free lump sum – up to 25 per cent of the pension fund can be taken as a tax-free lump sum. However, it can only be taken at the start of the annuity, not later.
- A fixed income – the same amount of money is received each month, quarterly, six months or yearly for the rest of their life.
- An increasing income – the level of income increases by a fixed percentage each year for the rest of their life.
- Inflation-linked – the starting level will be lower, but will rise in line with the Retail Price Index (RPI), or RPI, capped at 5 per cent (known as limited price indexation) every year.
Catering for dependants
If a client wants to make sure their spouse, registered civil partner or financially dependent partner is looked after when they die, there are options available to make sure they continue to benefit from that income.
For example, a joint annuity will ensure that they receive an income for as long as they live, or for a fixed term if the named financial dependant is a child.
This will usually mean that your client will need to accept a lower monthly income while they are alive, and they will need to take numerous factors into consideration – for example, whether their spouse has a pension or annuity of their own.
It might be worth suggesting a guaranteed minimum payment period to your client. This offers a term of up to 30 years from the date the annuity starts, with the maximum age at the end of the term being 100 years old.
This means any income will continue to be paid to the client’s estate or nominated beneficiaries at the same level, if they die during the guaranteed minimum payment period.
Your client may also choose to add value protection to their annuity. This returns up to 100 per cent of the initial annuity purchase amount minus the total amounts of annuity payments to date, as a lump sum to the spouse or dependant if the policyholder dies, taxable if the policyholder dies aged 75 or older.
Enhanced annuities
In some cases, annuity providers will also allow people with certain medical or lifestyle conditions to potentially receive a higher level of income in their retirement.
Many people can benefit from higher rates, especially those with moderate health conditions such as high blood pressure, high cholesterol or diabetes.
Certain lifestyle factors may also qualify, such as smoking, excess weight or a high level of alcohol consumption.
Essentially, clients should be encouraged to disclose their medical background, as they could find that they qualify for higher rates.