Annuities

Question 1

What are the benefits of a secured pension income, eg annuity?

Answer 1

1. Guaranteed level of income payable for life.
2. A survivor may also receive a guarantee level of income in the event of death.
3. The pension may be paid for a min number of years.
4. There is a TFC lump sum but this does result in lower pension payments.
5. Doesn’t trigger the MPAA.

Question 2

What are the drawbacks of a secured pension income, eg annuity?

Answer 2

1. Income is fixed at outset & cannot be changed to meet changes in circumstances unless a flexible lifetime annuity.
2. Income depends on annuity rates at outset which may not be favourable.
3. Doesn’t benefit from growth on the pension fund.
4. In the event of death, benefits payable to a survivor could be less than other options.

Question 3

What are the 7 factors that will affect the level of income received from lifetime annuities and scheme pensions?

Answer 3

1. The annuitants age
2. The age of the annuitants spouse if joint life annuity.
3. The escalation rate
4. Any guarantee period selected
5. The frequency the annuity is paid, eg monthly or annually, in advance or in arrears
6. The long term gilts rate applicable
7. Health for impaired life annuities