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A conventional annuity, also known as a lifetime annuity, pays a known and guaranteed income for the rest of your life. This income is paid by your chosen insurance company in exchange for the capital that you have built up in your pension fund.

The level of income you receive is based on the size of your pension fund, your age, gender and the options that you choose at the outset.

You may be entitled to an enhanced annuity if you have certain medical conditions or have a particular lifestyle (i.e. you smoke).

Advantages

• Your retirement income is guaranteed in line with the options you choose at that time of purchasing your annuity.
• You receive a secure level of income, allowing you to budget. This is useful if you don't want the risk of your income going down.
• There are no investment decisions involved
• You are protected from any future reduction in annuity rates

Disadvantages

• Once your annuity is set up, you cannot change your annuity options to reflect any changes in personal circumstances.
• You will not benefit from any future increases in annuity rates once your annuity is set up
• You may not be protected against the effects of inflation if you have chosen a level annuity.
• Escalating annuities provide a lower starting income, which could be approximately 33% lower than a level annuity.
• If you select a single life annuity, without a guarantee period, and die shortly after setting up your annuity, there are no further benefits payable and you or your estate may not get back all the money that was used to purchase the annuity

An enhanced, or impaired, annuity is a type of conventional annuity, where your health and lifestyle could entitle you to a higher income.

As with a conventional annuity, an enhanced annuity pays a known and guaranteed income for the rest of your life. This income is paid by your chosen insurance company in exchange for the capital that you have built up in your pension fund.

The level of income you receive is based on the size of your pension fund, your age, gender, the options that you choose at the outset, your health and your lifestyle. Individuals who take prescribed medication, have or have had known medical conditions could qualify for a higher annuity rate due to what many insurance companies perceive as a shortened life expectancy.

Some relevant health conditions include, but are not limited to:

• High blood pressure
• High cholesterol
• Diabetes
• Arthritis
• Heart attack
• Angina
• Cancer
• Asthma
• Kidney failure
• Stroke
• Multiple sclerosis
• Dementia

You could also quality for an enhanced annuity due to certain lifestyle factors i.e. if you are a smoker or are severely overweight. Having worked in certain occupations or living in certain areas of the country could also qualify you for a higher annuity rate.

Benefits

• Your retirement income is guaranteed in line with the options you choose at that time of purchasing your annuity.
• You receive a secure level of income, allowing you to budget. This is useful if you don't want the risk of your income going down.
• There are no investment decisions involved.
• You are protected from any future reduction in annuity rates

Risks

• Once your annuity is set up, you cannot change your annuity options to reflect any changes in personal circumstances.
• You will not benefit from any future increases in annuity rates once your annuity is set up
• You may not be protected against the effects of inflation if you have chosen a level annuity.
• Escalating annuities provide a lower starting income, which could be approximately 33% lower than a level annuity.
• If you select a single life annuity, without a guarantee period, and die shortly after setting up your annuity, there are no further benefits payable and you or your estate may not get back all the money that was used to purchase the annuity

Fixed term annuities provide a guaranteed level of income, for a specified time period e.g. five years.

At the end of the specified term you receive a guaranteed maturity sum. This amount is known and fixed at the outset. It cannot go up or down and is not dependent on stock market performance.

You can use your guaranteed maturity sum to reinvest in another pension product or purchase an annuity at that time.

You can choose the level of income that you wish to receive, within Government limits, although the higher the income you select, the lower your guaranteed maturity sum will be.

Fixed term annuities may be a useful option if you anticipate your personal circumstances or income needs may change later on in retirement. If your health deteriorates you may even qualify for an enhanced or impaired annuity at the end of the term.

Benefits

• Offers a guaranteed income (within Government limits) for a fixed term, allowing you to budget.
• Returns a guaranteed maturity sum to you at the end of the chosen term which is known and fixed at outset with no investment performance risk.
• Gives you the ability to adjust your retirement income options at the end of the fixed term by reinvesting the maturity sum. Depending on your age at the time, this could be another Fixed Term Annuity or a conventional annuity. If your health has deteriorated you may even qualify for an enhanced or impaired annuity. You will also then have the opportunity to review the benefits you require to reflect any changes in your personal circumstances
• Offers better death benefits at outset than many conventional annuity options with Value Protection, which returns a lump sum to your spouse/civil partner or other beneficiary in the event of your death during the term.
• You could potentially benefit from increased annuity rates at the end of the fixed term as you will be older and your health may have deteriorated, possibly making you eligible for an enhanced or impaired annuity.

Risks

• Annuity rates may be lower in the future. The level of income you can buy with the guaranteed maturity sum is not guaranteed and may be higher or lower than the amount a conventional annuity would pay if purchased today.
• If you die before the end of the fixed term, and no additional death benefits have been selected, income payments will stop and the remaining fund will not be paid.
• Once selected at outset, benefits cannot be changed during the plan term.
• The higher the income selected at outset, the lower the guaranteed maturity sum will be at the end of the term. This in turn will reduce the future level of income you can obtain.

Investment linked annuities, also known as with profits annuities, differ from conventional annuities in that your pension fund is put into investments, such as stocks and shares, to provide the opportunity for potential growth. There are two types of investment linked annuities:

• With profits annuities, where your money is invested into the annuity provider's with profits fund.
• Unit linked annuities, where you choose the types of fund for your money to be invested and your income is directly linked to the value of these investments.

Please note: we only provide quotations on with profits annuities. If you are interested in unit linked annuities, we recommend that you contact an Independent Financial Adviser.

With profits annuities

The amount of income you receive each year depends on the performance of the provider's with profits fund for each 12 month period and are then adjusted each policy anniversary to take into account the actual declared bonuses. This means that the annuity amount can go up or down depending of the performance of the fund.

Investment Linked annuities, tend to have higher charges than conventional or enhanced annuities. Any charges, including administration and investment costs, are taken into account when setting the annuity rate and before calculating your starting income. Details of these charges are shown on your full quotation.

Legal & General With Profits Annuity

We will provide you with quotations based on an Anticipated Bonus Rate or 'ABR' of 0%, 3% and the maximum of 5%. This means that you are anticipating bonuses that will be allocated over the following year at a rate of 0%, 3% or 5% and these incomes are guaranteed for the first year.

If the actual bonus declared is less than anticipated, your income for the following year will reduce. If the fund performs well and the actual bonus exceeds the ABR, your income, the following year, will increase.

It is standard practice that in the good years, some of the investment returns are held back and are used to boost bonus rates in the years when investment returns have not been so good. Therefore, 'Smoothing' any potential fluctuations in your income.

Any Protected Rights funds cannot be included and will be quoted as a conventional annuity.

Guaranteed Minimum Level

The guaranteed minimum level of income is calculated as a percentage of the starting annuity. Your annuity will never fall below this.

0% ABR 2.1 - 3.0% ABR 4.1 - 5.0% ABR

= 100% of starting income = 50% of starting income = 30% of starting income

Prudential Income Choice Annuity

The quotation we have given you is based on the maximum income allowable and is based on a Required Smoothed Rate or 'RSR' of 6%. This means that the declared bonuses for the following year need to be at a level of at least 6% to maintain your level of income.

If the actual bonus is less than 6%, your income for the following year will reduce. If the fund performs well and the actual bonus exceeds 6%, plus charges, your income for the following year will increase.

You can choose the amount of income from the specified range and the RSR changes to reflect this income. You can change your income from a specified range at any policy anniversary, but you are only allowed one change every 2 years. Any Protected Rights are quoted on the minimum RSR of 1%, the 'secure level'. This can be increased after the 2nd policy anniversary.

Secure Level

The 'Secure Level' is your guaranteed income amount. At the start of your annuity, the 'Secure Level' is the minimum income available (see quote). It then goes up by half of any increases in income. If there are no increases, or income reduces, the Secure Level stays the same. e.g. annuity goes up by £50, secure level goes up by £25.

Benefits

• Opportunity for steady growth
• Possible safeguard against the effects of inflation, without the low starting rate associated with escalating annuities.
• Can be converted to a conventional annuity with the same provider on any policy anniversary after the first policy anniversary. A charge is made for this change.

• Payments are guaranteed for the first 12 months
• The ABR or income level can be changed on the policy anniversary, with restrictions varying by provider. You will be charged making this change.

Risks

• The rate of future bonuses or smoothed returns cannot be guaranteed.
• Poor investment performance may lead to reduced income, but never below the minimum income guarantee or secure level.
• Annual changes in income may make it difficult to budget.
• Past performance is no guarantee of future performance.
• The higher the chosen ABR or income level, the higher the risk that your income will fall

This option was called an unsecured pension or alternatively secured pension, but it is now part of Drawdown Pension (which also now includes a short term annuity).

Income Drawdown allows a saver to take income from his or her pension fund while the fund remains invested and continues to benefit from any fund growth. It is a widely held belief that a pensioner generally needs a substantial fund value to take income drawdown.

Many pension providers specify minimum Pension savings values for Income Drawdown, but Independent Financial Advisors specialising in pensions normally consider it for all clients as they approach pension age.

Income Drawdown can be used in conjunction with annuity purchases.