Guide to Annuities. TQinvest.co.uk

Transcription

1 Guide to Annuities TQinvest.co.uk

2 03 Introduction 04 TQ Invest - helping you get the best deal 06 Your Annuity product options 08 Options and benefits 10 Offering more options our service to you 11 About TQ Invest TQ Invest St Marks, Chapel Ash Wolverhampton WV3 0TZ t: (0) e: info@tqinvest.co.uk

3 Introduction Turning your pension fund into a retirement income or annuity is probably one of the most important financial investment decisions you will ever make. That decision will affect your financial future for the remainder of your life, and that of your spouse or partner. This could be a very long time indeed, with 1 in 10 sixty five year old s now destined to celebrate their 100th birthday. Many people accept the first annuity income offer they receive from their pension provider. You may have already received yours. At first glance it may seem like a good deal but there can be many good reasons to stop and consider all your options before you sign on the dotted line. For example, the offer from your pension provider may not be the highest available on the market. With the difference between the best and worst annuity rates as much as 15-20%, choosing the wrong deal could cost you thousands of pounds in lost income over the rest of your life. Shopping around and making the right decisions now can mean you enjoy a significantly higher income for the rest of your life than the one being offered by your current pension provider. Another important aspect to bear in mind is that many annuity products involve a once only buying decision once you sign up there is generally no going back or changing your mind. So, pausing to consider your options and taking expert guidance at this time is vital before you make any decisions. TQ Invest can provide you with that expert guidance. We specialise in assisting people to find the right retirement income option for them and we can help you choose the right path to a better financial outcome in retirement. If you have received your annuity offer from your pension provider, they should also have made you aware of your Open Market Option your right to use the full value of your pension fund to shop around for the best deal on the market. We can use this information to do the hard work for you and obtain competitive quotations from our panel of annuity providers. In this way, we may be able to help you achieve a higher level of pension income. We have access to a wider range of providers so that we can help tailor your pension income to suit your personal requirements, state of health and long-term needs. This guide will help you to understand the options available to you and help you to make the choices that are right for you, your pension and your future. Guide to Annuities 03

4 TQ Invest - helping you get the best deal There are a range of factors that can affect the level of annuity income you can achieve, such as: The Size Of Your Pension Fund Of course the bigger your pension pot, the bigger the income you can achieve. However, we can help those even with modest sums achieve a better financial outcome by considering the widest possible range of options. The Tax Free Cash Lump Sum (Now Known As The Pension Commencement Lump Sum) You are usually able to take a tax free* cash lump sum before you buy your annuity. The tax free lump sum is usually up to 25% of the value of your pension fund(s) and it can be used for whatever purpose you choose. This is a once only decision if you choose not to take the tax free sum before you buy your annuity, you can t then take it later on. After the tax free cash has been deducted from your pension fund, the remainder is then used to buy a pension annuity. Your annuity income is taxable*. By taking a tax free lump sum you are reducing the total pension fund you have available to buy an annuity, with the result that your annuity income will be lower. Some people invest part or all of their tax free cash into income producing products to supplement their total income. * Tax treatment depends on individual circumstances and is subject to change Your Gender And Age Annuity rates are partly determined by your current age and sex. These help to determine your life expectancy, which in turn affects the level of income you will receive. The lower your life expectancy, the higher the income you will receive from a given sum of money and vice versa. Smoking, Lifestyle Habits And State Of Your Health As well as age and sex, annuity providers can take other factors into account to determine the level of income they are prepared to offer you. For example, those who smoke, are overweight or have high blood pressure tend to have a lower life expectancy. Annuity providers also look at a number of other factors, including where you live (specifically your postcode) and your occupation, as well as current or previous medical issues. Tax The income you will receive will be taxable. The amount of tax will depend on your personal circumstances. 04 TQinvest.co.uk

5 Annuity rates are partly determined by your current age and sex. These help to determine your life expectancy, which in turn affects the level of income you will receive. Guide to Annuities 05

6 Your annuity product options You have a range of annuity products to choose from. Here is a brief explanation of each one: Lifetime Annuity The Lifetime Annuity is the most common way to take retirement income from a pension plan and the product has been around for over 100 years. It is very simple, in that in return for your pension fund the Lifetime Annuity provider will pay you a guaranteed income at agreed intervals for the rest of your life, no matter how long that may be. In more recent years, Impaired Life or Enhanced Lifetime Annuities have been introduced which can offer you a higher guaranteed income based on certain lifestyle habits and the state of your health. Whether you choose a standard healthy life Lifetime Annuity or one on impaired or enhanced terms, your income will stop in the event of your death, or the death of both you and your spouse or partner (in respect of joint life annuities). Any of your pension fund still remaining is kept by the annuity provider. It is possible to build in death benefits to extend the time period of income payment after your death to a spouse/partner, but not indefinitely (we cover this later in this guide). Until recently it was compulsory to purchase a Lifetime Annuity no later than age 75 if you had not already done so. This rule has now been abolished. Fixed Term Annuity This is a new type of annuity product introduced to the UK in It is designed to give clients income certainty up to a maximum age of 75 (currently) but without tying you in to one product for the rest of your life. Enabling you to adjust your retirement benefits at the end of each term, which is selected by you. These plans run for a fixed period of time (usually three years or more), during which time you will receive a guaranteed level of income within certain limits set by the Government. At the end of the specified term you will receive a guaranteed maturity amount, which enables you to re-evaluate your options and purchase another retirement income product, either for life or for another fixed period of time. If your health or personal circumstances have changed at the end of the plan term, it may be possible to purchase an annuity that reflects your new situation. Your income may be higher or lower than it was before depending upon the options you choose at that time and on prevailing annuity rates. Unit Linked Annuity / With Profit Annuity This type of annuity is one where your pension fund is typically invested in either unit linked or with profits investment funds and the level of income that you receive is linked to how well the investments perform and (in respect of With Profit Annuities) the level of bonuses awarded each year by the annuity provider. Past performance is not a guide to the future and your income could go down during periods of volatility in the stock markets. 06 TQinvest.co.uk

7 What Should I Bear In Mind Before Making My Decision? All financial products carry risk. It is not the purpose of this guide to detail all the risks involved in the products mentioned previously. You will find full details of all the relevant benefits and risks in the Key Features Documents we send you with your personal illustrations. However, some of the key points to take into account include: What Will Happen To Annuity Rates In The Future? Rates today are at historically low levels. Some experts believe they will rise again in the future while others think they could fall still further. Whether you lock yourself in to today s rates or leave your options open with a more flexible product could hinge on your personal attitude towards this question. Will I Always Want Or Need The Same Shape Of Income And Benefits? Life can change and this is certainly true during the retirement years. Are you happy to secure your level of income today for the rest of your life or would you like the option to revisit this at a later stage in retirement? This too could depend on your view of the future trend of annuity rates. Will I Always Be Healthy? Statistically speaking your health is likely to deteriorate during the latter part of your retirement. Some people want to delay investing in a Lifetime Annuity as long as possible in the hope that they can benefit from an impaired or enhanced annuity rate later on, but there is no guarantee that you will qualify for a better rate or that you will end up financially better off even if you do. Do I Want To Take Investment Risk? Some people like absolute surety in retirement and do not want to take any risk with their pension fund, others are happy to take a certain degree of risk in the hope that they will benefit if the stock market grows. Guide to Annuities 07

8 Options and benefits Once you have decided what type of annuity to go for, the next choice to make is the type of options and benefits you want to build in to your plan. Generally speaking, the more options you build in the lower the annual income will be. Here is a brief summary of the options you need to consider. Tax Free Cash Your first decision is how much (if any) tax free cash you wish to take. If you don t take the cash now you can t ask to take it later on, and the more you take out (usually up to a maximum of 25%) the lower your annuity income will be. Single Or Joint Life Annuity A single life annuity provides a higher income than a joint life annuity as payments stop on your death. This option is normally selected by people who do not have any financial dependants or where their spouse or partner has reasonable income provision in their own right. A Joint life Annuity will pay a pre-determined percentage of your income to a spouse or partner after your death for the rest of their life. This could be set at 100% or at a lower percentage, typically either 66% or 50%. The higher the percentage you choose, the lower your initial income will be. If you select a joint life Lifetime Annuity, and your partner or spouse were to die first, then your income will remain at the same level for the rest of your life. This will be lower than if you had selected a lifetime single life annuity. If you select a joint life Fixed Term Annuity and your spouse or partner dies first then the lower level of income will continue to be paid for the remainder of the fixed term period only. At the end of the fixed term you can then purchase a new annuity product with options specific to your requirements at that time. Protected Rights If your policy contains or is all Protected Rights (which will be shown on your latest Pension statement from your current pension provider), you are restricted in the choices that you have for this part of your pension. The reason for this is that Protected Rights replaced the part of the second State Pension, which you were contracted out of. This dictates that if you are legally married then it must provide your spouse with a 50% pension upon your death. Guarantee Period This option guarantees that for a fixed period of time, income payments continue to be paid in the event of your death, at the full amount for the chosen period. The fixed period would normally be for the first 5 or 10 years from the date of annuity purchase. So, if you chose a Guaranteed Period of 5 years for example and died 4 years after taking out your annuity, your income would continue to be paid for a further year. On the same basis, if you died in year 6 no further income would be paid. 08 TQinvest.co.uk

9 Value Protection This benefit provides a lump sum on your death that can be paid to a spouse, partner or other dependant. It can be used to provide a pension income or, subject to a 35% tax charge, paid as a lump sum to be used for any purpose. The total benefit paid on your death is equal to your initial investment less any income paid up until the point of your death. Value Protection is not offered by all annuity providers. Increases In Payment When you set up your annuity plan you can choose for your income to increase over time or remain level. This is an important factor to consider because inflation can eat into your retirement income and its purchasing power. There are three variations available to you when deciding whether to increase the income you receive. Level Income (No Increase) You can choose to have the same annual income for the rest of your life. You should remember that the effect of inflation over time is likely to mean that what you are able to purchase with your money will be less as the cost of goods and services will rise. However, some people feel that it is during the early years of their retirement that they will be the most active and therefore want a higher amount of disposable income. Choosing this option means that your starting income will be much higher than if you select an income that increases annually. Increasing Income (RPI) You could choose to have your annuity increase annually in line with inflation, often called the Retail Price Index (RPI). This means that it will have the same buying power for the rest of your life. However your starting income will be substantially lower than if you had chosen a level income. Also bear in mind that with some products your income could go down if RPI fell below zero (i.e. during periods of negative inflation, although these are rare). Because your income starts at a lower point, it could take many years for the payment to be at the same level as the income you would have received if you had selected a level Increasing Income (Fixed Percentage) Alternatively you could choose to have your annual income increase by a fixed percentage each year by any amount up to a maximum of 8.5 percent. As above, this also means that your initial income will be lower than if you had chosen a level income and will take many years to get to the level it would have been at had you chosen a level income in the first instance. Timing Of Your Payments You have four annuity payment options monthly, quarterly, half-yearly or yearly. Many people choose monthly as that is what they have been used to during their working lives. However if you only have a small pension you may want to select a yearly income, which could be used to cover the cost of a holiday or an insurance premium etc. You can choose to have your payments made in advance or in arrears. Payments made in arrears will be slightly higher than those paid in advance. In advance means your first payment will be made immediately once your annuity starts. In arrears means that you will receive your first payment at the end of your chosen payment period (i.e. if you choose yearly in arrears, you will receive your first payment 12 months after your annuity is set up). If you selected to be paid annually in arrears and you died a few days before your next payment was due, this payment would not be made. This means that your estate could lose a substantial amount. However you can select to have your payments made with proportion or without proportion. With proportion means that if you die between two payment dates, a payment will be made after your death which will be a proportionate amount of your annuity from the date of your last payment to the date of your death. Without proportion means that no further payment will be made after your death and the last payment made before your death will be considered the final one. Payments made without proportion are slightly higher than those with proportion. Guide to Annuities 09

10 Offering more options our service to you This impartial service from TQ Invest aims to provide you with the information to enable you to choose the right annuity from a panel of top annuity providers, chosen for their track record of offering consistently competitive terms. We aim to give you the maximum choice by providing you with information from the widest range of product options and providers something we refer to as offering more options. Our Offer More Options service is outlined below: 1. TQ Invest will gather information from you to enable us to find the best annuity available for your circumstances from a range of leading annuity providers. We will need information about your pension fund(s) at this stage, so you will need to understand the details of your pension(s). 2. Once we have gathered all of the required information we ll search a panel of leading annuity providers to find you the best product solution to meet your needs and the best annuity rates for you to compare. We will not pressure you and simply present you with the facts so that you can judge for yourself what suits you best. 3. Once you have decided, we will send you a pre-filled application form for your chosen annuity provider that you simply need to check, sign and return, removing the hassle of filling in complicated forms. 4. TQ Invest will then arrange the transfer of your pension fund(s) to the annuity provider of your choice and you will start to receive your retirement income. To speak to a member of the TQ Invest Team about your annuity options call TQinvest.co.uk

11 About TQ Invest TQ Invest has been giving the UK population access to great deals on financial products for over 20 years. As a discount investment broker our service is designed for people who don t want, or need, financial advice. We provide you with the information you need to make your own decisions on the right investment for you. Once you ve chosen the right one, we then provide you with market leading deals, so you save whilst investing. We provide deals on products including Equity ISAs, Investment Funds, Pension and Annuities. You save money buying these products through TQ Invest because we use our size to negotiate deals with product providers on your behalf. We also take a reduced level of commission, on some products, such as ISAs and funds, we take none at all. Instead we put the commission back into your investment or use it to lower the annual charges. Premier Club For people who invest in a wide range of products regularly, we have created a service called the Premier Club. Premier Club members receive Cashback on the investments they make through TQ Invest. To find out more about becoming a Premier Club member, call or visit In Need Of Advice If you have particularly complicated pension arrangements, for instance, you may have an occupational pension or a substantial pension pot, then we recommend you seek the advice of a qualified adviser from TQ Invest s sister company Torquil Clark. Torquil Clark s consultants have specialist pension qualifications and can advise you on a wider range of options including unsecured and alternatively secured pensions. For more information on any of the content of this brochure please contact us at: or call on Guide to Annuities 11

12 For more information on any of the content of this brochure please contact us at: or call on TQ Invest St Marks, Chapel Ash Wolverhampton WV3 0TZ t: e: TQinvest.co.uk