Annuity  

Why annuities are an essential tool for clients' financial future

  • Describe why clients' retirement income needs are changing and how the annuity market has developed.
  • List the different types of annuities including lifetime, enhanced and fixed term.
  • Identify the importance of advice in the annuity market and why annuities can be an essential tool for clients.
CPD
Approx.30min

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.

Other conditions, including heart disease, lung disease and neurological diseases such as dementia, multiple sclerosis, stroke, kidney and liver disease, as well as depression and other affective disorders, are also taken into consideration. Conditions such as cancer or diabetes can have the biggest impact on providing a higher rate. 

An enhanced annuity works on the basis that certain diseases and lifestyle choices will lower the life expectancy of the annuity holder, so they will receive a higher rate of income over the life of the annuity. 

Many lifetime annuities can be purchased on enhanced terms, so it is important that you capture as much medical information as possible from your client. 

It is also worth asking a client if they have ever suffered from a particular disease in the past or if they are currently effectively managing a condition through medication or treatment, as they may still qualify for an enhanced rate.

Essentially, clients should be encouraged to disclose their medical background, as they could find that they qualify for higher rates.

Fixed-term annuities

Another option for clients approaching retirement is to consider a fixed-term annuity.

This is a fixed-term contract that will pay a set amount of income over a chosen period of time. This can usually be anywhere from three years to around 40 years.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. For the right client, annuities can provide what?

  2. There are four ways in which money can be taken from an annuity. Which one of the below is not one of those four ways?

  3. A guaranteed minimum payment period 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 what?

  4. True or false? "An enhanced annuity works on the basis that certain diseases and lifestyle choices will lower the life expectancy of the annuity holder, so they will receive a higher rate of income over the life of the annuity."

  5. The main benefit of a fixed-term annuity is that it is more what than a lifetime annuity?

  6. According to research, what percentage of over-55s could accurately describe an annuity?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe why clients' retirement income needs are changing and how the annuity market has developed.
  • List the different types of annuities including lifetime, enhanced and fixed term.
  • Identify the importance of advice in the annuity market and why annuities can be an essential tool for clients.

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