Monthly Archives: October 2013

Why Choose a Fixed Term Annuity?

Throughout your working life you save hard to provide for your income needs in retirement, so as the day approaches you have many choices to consider.  Will you chose to annuitise or go for the income drawdown route?  Even if you choose to go for an annuity you need to consider all the variations that are available.

A standard compulsory purchase annuity (or Lifetime Annuity) is purchased after any tax free cash has been taken and is then offering a guaranteed income for life.  The terms offered at the start may be based on you being fit and well when you first enter retirement and would therefore be based on your normal life expectancy.  The danger is that you could be annuitising too soon.

An alternative that should be considered is the Fixed Term Annuity which as the title suggests is a temporary measure for providing an annuity income. These schemes provide you with the guaranteed level of income you may require but for a specified period of time.  In addition to the guaranteed income they will also guarantee a maturity value which is known as the Guaranteed Maturity Value (GMA).  At the maturity date you are then free to take out another Fixed Term Annuity or consider moving into Income Drawdown, Conventional Lifetime Annuity or Investment Linked Annuity.

Choosing a Fixed Term Annuity will give you added flexibility as you are making a decision for your income for a specified term rather than one that will last your lifetime.  You can also choose this type of plan to access your Pension Commencement Lump Sum (tax free cash) and take no income for the duration of the fixed term.  You will then receive a guaranteed return at maturity.

By deferring your annuity purchase you may find that later in life you health has deteriorated and you could at that point secure benefits under an enhanced annuity therefore giving you the potential for your income in retirement.

You can include various options within the Fixed Term Annuity Plan to offer your loved ones some protection.  You can set up the payments so that they continue to pay to a spouse, civil partner or financially dependent partner should you die during the fixed term.  You could also structure these plans to ensure that the income will be paid for a specific number of years from inception even if you should die during this term this is known as a guarantee period.

In a similar way to Income Drawdown Fixed Term Annuities must be reviewed every three years for those aged under 75 and annually for those aged over 75.  Even if the term of the plan is over three years a review of the maximum income level is still required.  Income levels may need to be reduced should the government lower the GAD rate.

Is there any Insurance to My Estate if I Die Early Whilst Having a Long Term Care Plan?

One of the main concerns that people have about immediate needs annuities is that if they happen to die early, their premium will far exceed the payments they receive. There is a way to deal with this possibility and it is known as Capital Protection.

Capital protection is a method to insure the value of your unpaid premium for an additional cost. In case of early death, the agreed percentage of your premium is paid back into your estate by the insurance company. Obviously the proportion will reduce over time as you draw more payments.

Let’s consider an example. Suppose a client has a fund of £100,000 and would like to take Capital Protection on it while buying an annuity. The client can purchase capital protection at an additional cost, and in the event of death the insurance company would pay out the unpaid premium back to the applicant’s estate.

Say a client has an annuity from a fund of £100,000, which gives him an income of £5000 a year. If the client dies after 6 months, the amount paid out is £2500, and the unpaid premium is £97,500. Since the client passed away during the 4-6 month period, 25% of the unpaid premium will be paid back into his estate by the insurance company.

Most immediate care annuities come with an inbuilt insurance for up to six months. However, it is possible to purchase additional capital protection at extra costs. This gives your premium or estate extra protection for a certain period, in case of early death during that period.

Different providers may offer different types of capital protection plans. For instance, in addition to standard capital insurance, it may also be possible to purchase guaranteed protection that will pay out an agreed sum to your estate or beneficiaries irrespective of the time of death. While conventional capital protection reduces as more payments are made, this type of protection may have a fixed payable amount which does not reduce over time.

Value protection or capital protection annuities can be purchased for both single care annuities as well as joint care annuities. Capital protection, in addition to protecting premiums, can also be designed to protect your estate in case of early death.

Which Annuity Scheme is the Best?

When it comes to financial and investment products, there is no single answer to the question – which is the best product available? If there were a single product that worked well for everyone, other products simply would not exist. The fact that there are various kinds of annuities out there goes to show that which Annuity scheme will work best for you depends on your individual circumstances and what is most important to you.

The fact is that there are various annuities out there, each different from the other in some aspect or the other. The two main types of annuities are variable income annuities and fixed income annuities. As the title suggests, a fixed income annuity scheme pays a level, fixed income throughout the term of the annuity. A variable annuity, on the other hand, pays a variable income that is based on different factors depending on the type of the variable annuity.

If having a steady source of fixed income is important to you, a conventional level annuity scheme may work better for you than an annuity that is linked to an investment product such as stocks or shares. If you wish to protect your spending power and prevent your income from being eroded by future inflation levels, then an escalating or inflation linked annuity scheme might work well for you. On the other hand, if you require the maximum possible income from an annuity scheme right from the outset, then an escalating annuity scheme may not work well for you, since these type of annuities usually pay less than a conventional annuity would in the initial stages.

There are different bells and whistles that can be added to an annuity scheme, depending on the particular product and provider. For instance, you could add an extra feature that allows you to delay the annuity, or a feature that would allow your income payments to be made to your partner or beneficiaries for a certain period of time, even after you are gone.

So, when it comes to an annuity scheme, there is no single option that will work best for everyone. Everyone needs to find an annuity that will suit their specific needs. You can find the most suitable annuity by exploring the entire open market, and by comparing different products. If needed, you can also consult an independent financial advisor who can give you objective advice and help you make the right choice.

State Earnings Related Pension Scheme (SERPS)

In April 1975 the State Earning Related Pension Scheme (SERPS) was introduced to replace the Graduated Pension Scheme. SERPS was an additional benefit that accumulated alongside your basic state pension in a bit to raise the standard of living for many individuals in their retirement. The benefit is dependent on contributions made to the scheme via your National Insurance Contributions (NIC).

The benefit that accumulated under SERPS was calculated at 1.25% of middle band earnings. Middle band earnings where revalued each year and adjusted in line the national average earnings for each year of your working life up to 20 years. It could be based on the best 20 years of your working life. Therefore up to 5th April 1999 the maximum benefit would be 25% (1.25% x 20 best years). Owing to changes in the Social Security Act 1986 you are no longer able to base the benefit on the best 20 years but instead it is taken over an average of your lifetime revalued earnings.

Benefits accrue under this scheme for the employed only. Self employed would not benefit due to the different class of National Insurance that is paid on their profits. The government chose to give individuals more control of their pension funds by allowing them to opt out of the State Earnings Related Pension Scheme in favour of investment into an Appropriate Personal Pension. The funds that accumulated in the Appropriate Personal Pension resulted from a rebate from HMRC each year. These funds would have been segregated from your personal pension as they used to be treated differently when crystallising the benefits at retirement. From April 2012 you are no longer able to contract out of SERPS. All of those individuals who were contracted out with now be automatically returned to the state system. This means that no further contributions will be paid by HMRC and therefore national insurance contributions for both employer and employee will return to the standard level.

What Makes for the Best Annuity?

Coming up to the age of retirement is never an easy thing, your life is about to change in a dramatic way, but in addition to that you have to start thinking about how to get yourself from one side of retirement to the other with a minimum of financial stress and hassle. Once you begin looking into the various choices that are available to you after retirement you will come across annuities, again and again. An annuity, even the best annuity, will work in a basic way as an exchange. In exchange for your pension you will receive a regular income for the rest of your life.

There are many options that you can choose from, but an annuity will certainly be one of them, and with the wealth of annuity providers out there, the key is to find the best annuity and the best annuity provider that you can. But the question then becomes what is the best annuity, and the answer is quite simple. The best annuity is the one that will make sure that you are financially stable and looked after, from the moment you retire until you die.

This might seem like a big thing to ask an annuity provider, but really this is what they are offering, and what the best annuity should always provide. Unfortunately, there is no singular answer to what the best annuity will be. It will depend on the pension and savings that you have managed to put together. It will depend on whether you want the best annuity as a single person or as a couple. It will also depend on your current health and if you are taking any medication.

There are so many variables even before you begin to think about the annuity providers, that actually the only way to find the best annuity is to find the best one for you. Luckily this is not too difficult to find out about. There are many websites dedicated to educating you about annuities and what your options are, but it is your insurance company’s responsibility to inform you about what your options are. So to find the best annuity, this is a good place to start. However, as in all shopping, it is best to shop around before making a firm decision, especially since you cannot get your money back once you have bought an annuity.

Annuity Comparison: How to Find the Best Deal

For some people annuity seems like a dirty word, but really it can be a very useful way of managing your money and getting you through your retirement in a way that keeps you pretty financially stable. In the current economic climate, the thought of financial security or of having a regular income every month is a huge relief, and an annuity can really make that happen; but in order for that to happen you have to find the best annuity deal possible, and at the beginning of your search an annuity calculator can be useful.

Annuities are an investment, but a low-risk investment and in order to calculate what your returns might be it is a good idea to use an annuity comparison table. With an annuity calculator you input your age, gender, post code and any medical information that is asked for and the annuity calculator will give you an idea of the income you might expect to receive and the annuity rate that you will get. And with annuities, the rates that you get are crucial. When you buy an annuity, the annuity provider will use the money they give them to buy government bonds and gilts and the income that you will receive will in fact be the returns from that very investment.

While investments fluctuate at the best of times, an annuity is quite low risk, but it is all about the rate that you get, or put another way, the rate of return that you get. So how then do you find the best deal? It is quite simple. The best and only way to find the best deal is to shop around, most annuity providers have annuity calculators on their websites, and if they don’t have an annuity calculator then you can always phone for a quote. In this way you can get an idea of what you can expect from each annuity provider.

An annuity calculator will give you an idea of what annuity rates you can expect, but the rate is not a guarantee and in order to get a serious quote you will need to move from the annuity calculator to the phone or to a financial advisor. It is up to you to get the best deal for yourself but there are people around whose job it is to help you. So make use not only of the annuity calculator but also of the resources of financial knowledge that you have access to, and if you don’t have one, find one.

What is an Annuity Calculator?

Before we know what an annuity calculator is, we need to know what an annuity itself is. From the moment that you started working you began saving money in your pension; either a pension set up through your employers and/or one that you set up for yourself. You save and save for years but what do you do with that money once you reach the age to start thinking about retirement?

At this stage you will no doubt begin looking into the best ways to make the pension you have saved last you until you no longer need it. There are many options for you to choose from and an annuity is one of them. If you choose an annuity, you will take the capital that you have saved in your pension fund and you will exchange this for an annuity. This annuity will guarantee you an income for the rest of your life. Naturally this is quite a good option because it means that you will have a regular income, most commonly on a monthly basis, but potentially on a quarterly, bi-annual or yearly.

You may like to know what your annuity might be if you chose this option. This is where an annuity calculator becomes useful. An annuity calculator will give you an indication of the income that you might expect to receive from your annuity. What the annuity calculator will give you is only a guide, and should you wish for a more accurate quote, you will need to contact the annuities provider directly.

The annuities calculator will take a number of factors into consideration when estimating your annuity. You will be asked what your age is, and what your sex is. You will also be asked where you live, if you smoke or are overweight. All of these bits of information will be used by the annuity calculator.

If you are pleased with the guide given to you by the annuities calculator then you should consider getting a formal quote. There are a variety of annuities providers, who will offer slightly different annuities and it is best to get quotes from as many as possible in order to make an informed and beneficial choice. Annuities can be extremely useful in setting yourself up for a financially secure retirement, which you will no doubt deserve after years of saving towards your pension.

Which Annuities Calculator Computes The Best Deal?

At the simplest level, the way an annuity works, is that when you retire you use the pension fund you have accumulated in order to buy an annuity. This annuity is bought, essentially in exchange for an income that you will receive for the rest of your life. An annuity calculator can be useful here. An annuity can operate both as an investment and as a way to effectively manage your money.

This all relies however on the proper functioning of the annuities market, which like all other markets at the moment, is not at its most stable. Logically then, you may feel a bit more apprehensive about the choice to take out an annuity and then of course, which annuity product to decide on.

Finding the right annuity is really about good educated research and knowing what your options are. There are many websites and experts that can help you make an informed decision but you might like to know what you can expect. And this is where an annuities calculator comes in. An annuities calculator can provide a quick bit of information on the level of income that you can expect based on what the size of your pension fund is as well as other factors mentioned later. The choice to take out an annuity is a very popular one in the UK.

What you want then is the best possible annuity rate and this will take some shopping around, where the annuities calculator can also be helpful is to see how including and excluding certain options can change the annuity rate. For example increasing your income or adding a period of a guaranteed minimum payment can change the annuity rate.

The annuities calculator will ask for a few necessary details. These will include your age, gender, fund size and then all you have to do is to click the calculate button. The income you will receive from your annuity will be founded on choice that will give you the highest income; however, you can play around with the options to see what other choices you might have such as a single life annuity or joint life annuity.

An annuities calculator is not the be all and end all in the quest to your annuity rate, it is used as a preferred guidance tool and to give you an idea of the best annuity rates that you can find, and the options that you have available to you. It is a research tool, not a guarantee and the same is true of calling in a query.

Uses of an Annuities Calculator

Just like pension, an annuity is a distribution of lifetime savings that are earned within a specified period or even paid at one go.  This is later distributed or paid to the annuitant after he or she attains an age of 62 years. Unlike a pension where one is paid the whole lump sum of money, an annuity is distributed as an annual income once one retires, and is determined by the amount of money the annuitant has accumulated or agreed to pay as annuity.

An annuities calculator on the other hand is a spreadsheet that helps one determine the amount of money to pay as annuity. This calculator calculates the amounts depending with the market conditions and economy, and gives an exact amount of money that one is required or willing to pay as per his or her preferences. This calculator gives you an exact amount of what you need to pay per month, or yearly as per your specifications, and is a key tool used by insurance brokers to calculate insurance rates for people.

The other use of this calculator is to help predict life expectancy rates in relation to the current rates, which is also determined by the company offering the same. However, if you are looking for an annuity service provider to use, you will need to make sure shop around for similar companies, and then select a company with cheaper rates to use.

Nonetheless, you also need to be aware of the annuity rates before you can set a fixed amount of money to pay as annuity. An annuity calculator on the other hand acts as a guiding tool that has helped many novices understand what and how much it will take them to secure a better future.

One thing you need to know for sure is that, the less the amount of money you pay for annuities, the less the amount you will receive during your old age. The calculator can help you make a distinctive budget on the amount of money you want to be receiving per month, which means you will be able to set yourself for that, or even change your lifestyle.

Before you Buy an Annuity do your research!

What is the definition of procurement? To procure something is to plan and research its purchase, examine the product in all its aspects and to find the appropriate product that meets all the demands and needs of the buyer. As such, to procure can simply mean to buy, but with a far more analytical approach. When you buy an annuity, you are making an important decision that will affect your income during the rest of your life. An annuity once purchased cannot be reversed, and so buying an annuity is a decision that should be treated with some seriousness.

We may not realise it, but whenever we do buy something we are, in fact, procuring it. First of all we analyse our requirements, we try to understand what we need and why, next we determine a budget, consider different options, think about long term prospects and lasting power of the different options and then finally, make the purchase.

Therefore, don’t simply buy an Annuity; rather, look at it as procurement. After all, an annuity is not like purchasing an electric kettle or a pair of pillow covers. It is something that plays a significant role in retirement income; will have a huge impact on your financial security during retirement; and therefore has implications for the quality of the rest of your life.

When it is time to buy an annuity, pensioners have the right to explore the open market and shop around for the best annuity. This is known as the open market option. Despite this, a large proportion of people do not exercise this right and simply commit to the first annuity deal that is offered to them by their pension provider. Many people do not offer the same time and effort when they buy an annuity that they would to buying something far more insignificant!

Research has shown that shopping around for the best annuity is one of the most important steps in ensuring that you maximise your pension savings during retirement. Indeed, recent figures show that using the open market option to look for the best annuity deal could mean getting up to 46% more income during retirement. Not only that – shopping around also makes you aware of the different types of annuities available on the market so that you can choose one that truly suits your individual needs. Procurement involves reading reviews, understanding different options, shopping around, negotiating with sellers and finally, making a commitment to buy the product that best suits your requirements. These very same principles must be applied when you buy an annuity.