Frequently Asked Questions
If you're having problems using our site, or just need some information about retirement products, use the links on this page to find answers to any questions you may have.
Why should I shop around when looking for an annuity?
The company holding your pension fund does not necessarily offer the best annuity rates. Shopping around for a better deal before buying an annuity can greatly increase your retirement income. Remember that once you have bought an annuity, you cannot switch to another annuity provider. Pensions to Retirement can help you compare the rates of UK annuity providers, enabling you to find the best deal for your circumstances. We also handle all the paperwork needed to set up your annuity.
Can annuities provide an income for my partner?
Yes. If you die before your partner, a joint life annuity continues to provide them with an income. You can choose the percentage of your income (up to 100%) that your partner will receive.
What is a guarantee period?
Normally, lifetime annuities pay an income only until you die. You can optionally specify a guaranteed period of up to 10 years from the start of your annuity. If you die within this period, a nominated beneficiary or your estate will continue to receive your annuity.
Can I change annuity providers during my retirement?
No, you only get one chance to buy an annuity — you cannot change the annuity's benefits or switch to another provider — therefore you must make the right decision at the outset.
How often will I receive my annuity income?
You can choose to receive your income monthly, quarterly, half-yearly or annually, and also choose whether it is paid at the start or end of each period. Note that you cannot change when you receive your income once you have bought an annuity.
Do annuity incomes increase in line with inflation?
You have the option to choose an annuity where income increases in line with the retail price index (RPI) or limited price index (LPI). This is known as escalation. In this case, the income you receive at the start of your annuity will be less than a level (non-escalating) annuity.
Do medical conditions affect annuity income?
Medical conditions and poor health can mean that you receive a greater retirement income. These are known as enhanced annuities. When applying for an annuity, provide as much information as you can about your health, including whether you smoke.
Do I need to pay tax on my annuity income?
Annuity income is regarded as earned income and is taxed under PAYE.
How much do you charge?
We do not charge to compare annuities and find the best deal for you. If you proceed with buying an annuity through us, the annuity provider will pay us commission directly.
How much tax-free cash can I take from my pension fund?
Personal pensions usually allow you to take up to 25% of the pension fund value as tax-free cash.
Are annuities secure?
The Financial Services Compensation Scheme covers up to 90% of lifetime annuity payments.
What is the Open Market Option?
This means that you do not have to buy your annuity from the company holding your pension fund. You can instead buy it from another insurance provider who provides better rates.
When should I arrange my annuity?
We recommend starting not later than 6 weeks before retirement, but you can start planning up to two years before.
What is a deferred annuity?
Income from deferred annuities (also known as pension policies) does not start immediately, in contrast to other types of annuity. Rather than buying the annuity with a lump sum, you pay regularly into the policy over a period of time. You only receive income from the annuity at the end of the agreed period. Alternatively, you may be able to use the fund as a lump sum to buy a different annuity.
What is an enhanced (impaired life) annuity?
Enhanced annuities are typically available to those with health issues that will potentially reduce life expectancy. The income you receive is usually higher than that you would get from a standard annuity. You need to provide greater information about your medical history to qualify for an enhanced annuity.
Set up by the Government, the money advice service offer free and impartial advice and, guides and calculators to help improve your finances
The pensions advisory service can advise you on your pension
Through providing information and advice, AgeUK enable people in later life to make the most of their money
AgeUK help put money in older people's pockets by finding millions of pounds of benefits they're entitled to. They campaign to improve pensions and tackle pensioner poverty to ensure that everyone has a sufficient income
Moneywise are an online information service providing practical advice and impartial views on the financial sector, and financial products
The retirement health form is an online representation of the traditional paper health form, providing information and guidance on how to complete the form
The UK Government's official information regarding pensions and retirement
What is an annuity?
An Annuity is an investment that guarantees to pay a secure income for the rest of your life, no matter how long you live. In the UK there are two types of annuities; pension annuities which are compulsory to purchase and purchased life annuities which are voluntary to purchase. All annuities share the following basic characteristics:
An investment which pays an income for the rest of your life no matter how long that is.
Turns your pension lump sum into a monthly or yearly income.
If you have a medical condition or a destructive lifestyle you will be able to get a higher income under the assumption that you will probably die sooner.
When you die the payments will stop. This is unless you have chosen a joint life annuity or a guaranteed payment period.
What are the options?
Everyone is different and annuities have different options to help them bend to your preferences. There are lots of extra features that you can add to your annuity to tailor it to your personal circumstances.
Standard or enhanced annuity
Standard annuities assume that you are in good health but if you have below average life expectancy, you can apply for an enhanced annuity which will pay a higher income, sometimes enhanced annuities can be referred to as impaired annuities.
Single or joint annuity
A single life annuity pays a higher level of income but stops when you die. If you are married, in a civil partnership, or cohabiting you can choose to have a joint life annuity which will continue to your partner if you die first. You can choose how much income your partner will get if you die first. With single life annuity products paying higher rates it is also worth considering if your partner will definitely need your income.
A guaranteed period ensures annuity payments are made for a minimum term. If you selected a 5 year guarantee and died after 2 years, income would continue to be paid to your dependants for a further 3 years not having a guarantee period will raise your rate.
Level or escalating
A level income pays the highest income from the outset, but will never increase and is likely to lose its buying power as inflation lowers the value of your money. The solution to this problem is to choose an escalating product which raises year on year.
Annuities can be paid monthly, quarterly, half yearly or annually. You can choose to have payments made at the beginning (in advance) or at the end (in arrears) of the chosen payment period. The longer you leave it before you receive the first payment, the higher the income will be.
What is an open market option?
When you retire you do not have to arrange your retirement income with the company you have invested your pension. You can substantially increase your income by purchasing your annuity from the company which pays the highest income at that time. This is called “The Open Market Option” which takes your details and gets quotes from all the major providers.
What are investment linked annuities?
Investment linked annuities combine many of the advantages of traditional annuities such as an income for life, with some of the advantages of drawdown such as and the option to invest in the stock market.
The advantages to these products are:
- Potential for future income growth
- Income flexibility
- Control over investments
- Choice of death benefits
The potential disadvantage is the risk that invested funds may not grow or be lost.
What are fixed term annuities?
A Fixed Term Annuity (FTA) is an investment within a drawdown plan which provides guaranteed income payments for a set number of years. At the end of the term there will be a guaranteed maturity pay-out which can be reinvested in an annuity or a drawdown plan.
The policy can be set up on a joint life basis and with a guaranteed income period or value protection option. This means that on death before the policy matures, income payments will continue to a surviving spouse / partner or a lump sum less 55% tax can be paid depending on the options chosen.
What is income drawdown?
This is ideal for retirees that know exactly how much they need per month as an income. It is a plan that is much more flexible than an annuity, it allows you to draw a retirement income directly from your pension pot whilst leaving the rest invested. You choose where your remaining funds are invested and if your funds perform well, you may benefit from some growth over time. The negative aspect of Drawdown products is they can go down as well as up.
Types of drawdown
There are two types of drawdown although these will be changing quite radically after April 2015 – Capped and Flexi Access Drawdown.
You choose an income between zero and the GAD maximum. The GAD maximum is equivalent to approximately 150% of a conventional single life annuity rate and is published regularly by the Government Actuaries Department. These maximums are fixed until the next review. The lower the income you take at the start (you can choose to take no income at all), the more your remaining fund should be worth, giving you a higher income in the future.
You can alter your income at any time between zero and the GAD limit. The GAD limits are normally reviewed every three years, but after April 2015, the GAD maximum limit is being removed and you will be able to take any amount out of the fund.
Flexi Access Drawdown
You choose an income between zero and the GAD maximum. The GAD maximum is equivalent to approximately 150% of a conventional single life annuity rate and is published regularly by the Government Actuaries Department. These maximums are fixed until the next review. The lower the income you take at the start (you can choose to take no income at all), the more your remaining fund should be worth, giving you a higher income in the future. You can alter your income at any time between zero and the GAD limit. The GAD limits are normally reviewed every three years, but after April 2015, the GAD maximum limit is being removed and you will be able to take any amount out of the fund.
Financial strength ratings
The purpose of Moody's ratings is to provide investors with a simple system of gradation of creditworthiness of financial services companies. Gradations of creditworthiness are indicated by rating symbols. There are nine symbols as shown below, used to designate greatest to least credit risk:
|Aaa||Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.|
|Aa||Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.|
|A||Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.|
|Baa||Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.|
|Ba||Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.|
|B||Obligations rated B are considered speculative and are subject to high credit risk.|
|Caa||Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.|
|Ca||Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.|
|C||Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.|
Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
AKG aim to assist investors by providing ratings on a product provider’s financial strength as a company. There are 6 ratings:
Standard and Poor's
Standard & Poor’s ratings express the agency’s opinion about the ability and willingness of a corporation to meet its financial obligations in full and on time. Credit ratings are not an absolute measure of default probability but are a useful way to compare the credit risk associated with different product providers.
|Aaa||Extremely strong capacity to meet financial commitments.|
|Aa||Very strong capacity to meet financial commitments.|
|A||Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.|
|BBB||Good financial security but is more likely to be affected by adverse business conditions than are higher-rated insurers.|
|BB||Less vulnerable in the near term but faces major ongoing uncertainties to adverse business, financial and economic conditions.|
|B||More vulnerable to adverse business, financial and economic conditions but currently has capacity to meet financial commitments.|
|CCC||Currently vulnerable and dependent on favourable business, financial and economic conditions to meet financial commitments.|
|CC||Highly vulnerable, default has not yet occurred, but is expected to be a virtual certainty.|
|C||Currently highly vulnerable to non payment and ultimate recovery is expected to be lower than that of higher rated obligations.|