Buying a pension annuity

Transcription

1 Buying a pension annuity

2 Why do I need to think about buying a pension annuity? When you come to retire, you will have some important decisions to make. Probably most important of all is how you will generate a regular income, on which you ll have to live for the rest of your life. If you re a member of a salary related or defined benefit pension scheme, your income will typically be a proportion of your salary easy! However, if you don t fall into this category, the pension fund that you ve built up over the course of your working life won t automatically provide you with an income. In order to turn your pension fund into a regular income you may have to buy what is called a pension annuity. Quite simply, an annuity pays you a series of regular income payments (a pension). Once in payment, it s then payable for the rest of your life, no matter how long you live. Where can I buy a pension annuity? The Saga Annuity Service offers you access to a pension annuity available exclusively through Saga. The service and annuity are provided by Legal & General Assurance Society Limited. You can normally buy a pension annuity from the provider you took your original pension plan out with, or you can shop around and choose another provider if they can offer you a better deal. This is called taking your Open Market Option. In addition, if you have a number of pension plans taken out with different providers, you may wish to combine or transfer them into one. By doing so you may increase your buying power. There are a number of different types of annuity available on the market. You need to make sure that the annuity you buy is the one that best suits your circumstances. How much regular income will I receive from my pension annuity? The income you ll receive will depend upon a number of factors, the main ones being: The value of your pension fund The level of income we ll pay will depend on how much money you have in your pension plan and the annuity rate you are offered. Putting more money into a pension annuity at the start means it will pay you a higher income. With the Saga Annuity Service, you only need a pension fund of 1,000. Your age The amount of income you receive from your pension annuity depends on how long it is expected to be paid out, i.e. how long you are likely to live. So, the younger you are when you buy an annuity, the likelihood is that you will be drawing an income from it for longer. Therefore the regular income a younger person receives will be less than that paid to an older person who buys a pension annuity at the same time with a fund of the same size. Your state of health Certain medical conditions and lifestyle choices such as smoking may reduce life expectancy and the length of time that a pension annuity is needed, and therefore could increase the level of income you receive. The Saga Annuity Service will automatically ask you a few questions to see if you qualify for an enhanced annuity rate under such circumstances. Investment market conditions Different annuity providers will have different ideas about future investment returns, which will affect the terms they offer. That s why you may wish to compare the quote from your pension provider with one from the Saga Annuity Service, who may be able to help you achieve greater retirement income. Whether you take a cash lump sum You can use all of your pension fund to buy an annuity, or you re allowed to withdraw up to 25% of its value in the form of tax-free cash. The remainder of your fund will then be used to provide your income. The more you take as a cash lump sum, the less you ll have to provide your regular income. The payment options you choose These are explained in the section Payment options. 2 Call now for a quote on

3 What types of pension annuity does the Saga Annuity Service offer? Once you have bought an annuity and it has been set up, you are tied to that annuity for life. You cannot change to a different one. Therefore, it s important you understand the differences between the various types of annuity that we offer and the payment options available. Deciding on what s best for you will depend on your overall needs and personal circumstances. Pension annuity A pension annuity will pay you an income for the rest of your life. You can choose from the outset either a fixed income, which will pay you a set amount each year, or one that increases year after year. If you decide to take a fixed income, it will never fall or go up. It may therefore be exposed to the effects of inflation, which could mean that your money will not stretch as far in years to come. In order to be considered you will need to answer some simple questions about your health. The information you disclose will then be assessed to decide whether you re entitled to a higher income. Enhanced annuity rates If you have a more serious health complaint then you may be eligible for an enhanced annuity rate. You ll need to complete a detailed medical questionnaire but it could mean you receive additional income. Also, if you choose to provide a spouse s, registered civil partner s or dependant s income, then you may be eligible for a higher income based on their health. Alternatively, an increasing income may help guard against the possible effects of inflation. You can choose to have your income increase each year by a fixed percentage of anything up to and including 10%, or you can choose to have it linked to increases in the Retail Prices Index (RPI). RPI increases are not available on a pension annuity if you qualify for enhanced rates or Annuity Plus (see below). It s important to note that the starting level of an increasing income will be lower than the starting level of a fixed income. Annuity Plus If you suffer from certain medical/lifestyle conditions, then you may be eligible for a higher income than that offered by a standard pension annuity. Annuity Plus is primarily aimed at the following: n smokers n people who are overweight or underweight n people with high blood pressure n people with diet controlled type 2 diabetes. Buying a pension annuity from the Saga Annuity Service 3

4 What do I need to consider? What is my attitude to risk? Your attitude to risk may go some way to determining the sort of pension annuity you buy. For example, would you prefer to receive exactly the same income each month or have it increase by a set amount? Or would you like to benefit from potential growth in the stock market, even if that means some uncertainty and risk? If your attitude is to take a more cautious approach, then you re more likely to want to consider a conventional pension annuity. If, on the other hand, you would like to adopt a more adventurous approach, and you understand the possible risks that you may face if you do so, then you could consider retirement income drawdown options. What about my dependants when I die? A pension annuity will pay you an income for as long as you live and will normally stop being paid when you die. You may therefore want to consider how you can provide for those you might leave behind. When you buy your pension annuity you may want to include: n a spouse s, registered civil partner s or dependant s income, payable after your death, and/or n a guaranteed minimum payment period, where your income will continue to be paid even if you die within that period. If you choose either option, then your starting level of income will be lower. How can the Saga Annuity Service help you? A Saga pension annuity provided by Legal & General can provide you with a regular income, payable for the rest of your life. Retirement income drawdown options are not available through the Saga Annuity Service, but can be accessed through the Saga Financial Planning Service, provided by my wealth, on *. *Calls to 0808 numbers are charged at the same rate as 0800 numbers. How can the Saga Annuity Service help you? You can choose: n a spouse s or registered civil partner s income option. Or, if you re not married or in a registered civil partnership, then you can choose for an income to be paid to a financially dependent partner. The amount payable can be set at any amount up to a maximum of your own income, and/or n a guaranteed minimum payment period option. In most circumstances you can normally choose a period of between one and 10 years (in whole years only). 4 Call now for a quote on

5 What about my state of health? Your state of health may have a bearing on how much income you ll be paid. For example if you smoke, or you re in ill health then you could be entitled to a higher income. In determining the amount of income you ll be paid, it may be that you re eligible for enhanced terms meaning you may receive a higher level of income. This is because the life expectancy of someone who is suffering from poor health may be shorter than that of someone who has a healthy lifestyle and is in good health. How can the Saga Annuity Service help you? If you have certain medical/lifestyle conditions then you may qualify for Annuity Plus, which will pay you a higher level of income than a standard pension annuity. If you suffer from more serious health problems then you could qualify for an enhanced annuity rate which could significantly increase your income in some cases. *Source: Latest figures from the Office for National Statistics, 2012-based Expectation of Life Table. How long will I need my income? You may be surprised at how long you may need to rely on your income. In 2014, a man aged 65 could reasonably expect to live a further 21 years; and a woman of 65 a further 24 years.* Therefore you need to consider the possible effects inflation may have on your income year after year. For example, if inflation averaged 2.5%, after 10 years the value of 100 in today s money would be only 78; and after 25 years, just 54. When you buy your pension annuity you can help guard against the possible effects of inflation. You can choose to have your income increase automatically each year. It s important to note that the starting level of an increasing income will be lower than the starting level of a fixed income. How can the Saga Annuity Service help you? An income from a Saga pension annuity can be linked to: n a fixed level of increase of up to and including 10% a year, or n the increase in the Retail Prices Index (RPI): the index of the average change in the prices of goods and services in the UK. Payment options Payment frequency You have the option of how and when you have your income paid. Although most people opt for a monthly income, you can choose to have your payments made to you on a quarterly, half yearly or yearly basis, and either at the start of the payment period ( in advance ) or at the end of that period ( in arrears ). An income for your dependant A pension annuity will normally pay you an income for as long as you live and will stop being paid when you die. However, you can make arrangements for an income to continue to be paid after your death to a surviving spouse or registered civil partner. Or, if you re not married or in a registered civil partnership, you can choose for an income to be paid to a financially dependent partner. If you have someone who is financially dependent on you and he or she has no other source of income, then it s certainly worth considering. If you choose this option, then your starting level of income will be lower. Guaranteed minimum payment period Whilst your annuity will pay you an income for as long as you live, by choosing a guaranteed minimum payment period your income is guaranteed to be paid even if you die within that period. You can normally select a period of up to 10 years (in whole years) and, should you die during that time, any remaining income payments will be paid to the person nominated by yourself, or to your estate. If you select a guaranteed payment period your starting level of income will be lower. Buying a pension annuity from the Saga Annuity Service 5

6 How much does each option cost? There is a cost attached to each payment option which will directly affect your starting level of income. The more options you choose, the greater the effect. You can ask for as many quotations as you like so that you can see what effect the different options would make to you. The table below gives an indication of the relative cost of each option. The figures are based on a fixed income for a man aged 65 exactly, with a wife aged 62, payable monthly in arrears. just to give an idea of the effect that different combinations of options may have on your starting level of income. Examples: If no other payment options are chosen then the man would get an annual income of 1,000 payable monthly in arrears. But if he were to choose a 3% increasing payment with a five year guaranteed minimum payment period and 50% spouse s income, then his starting level of income would be 591*. Please note the table below is an example and displays a select number of options. This is not an exhaustive list; it is Yearly increase Yearly increase Guaranteed Guaranteed minimum payment payment period period (years) (years) Spouse s Spouse s income income (%) (%) Starting Starting level level of of income income ( ) ( ) None 0 0 1,000 None None % % % None None None *3% % % RPI RPI RPI Source: Legal & General. Correct as at 10 January Call now for a quote on

7 Further information Do I pay tax on my income? Your income will be subject to income tax according to your personal circumstances. Your payments will normally be made after the tax has been deducted. Any income paid to your spouse, registered civil partner or dependant following your death will also be made after the tax has been deducted. Are there maximum limits on how much income I can receive? There are no restrictions on how much income you can receive. However, if the value of your total benefits from all your registered pension schemes (including pensions already in payment) exceed your Lifetime Allowance, a tax liability of up to 55% may be payable on the excess. If you think that your total funds may exceed your Lifetime Allowance and you would like expert advice contact the Saga Financial Planning Service, provided by my wealth, directly on *. The standard Lifetime Allowance, which applies to most people, is a maximum of 1.25 million (during the 2014/15 tax year). Who can I contact for more information? The Financial Conduct Authority (FCA) is the body responsible for the regulation of the financial services industry in the United Kingdom. For more information on the FCA: What should I do next? You can buy direct by calling the Saga Annuity Service on: Calls may be recorded and monitored. The Saga Annuity Service team is not authorised to give financial advice. If you wish to seek financial advice, this is available from the Saga Financial Planning Service, provided by my wealth who are part of WEALTH at work, on *. WEALTH at work and my wealth are trading names of Wealth at Work Limited, which is authorised and regulated by the Financial Conduct Authority and is a member of the Wealth at Work group of companies. Registered in England and Wales No About the Saga Annuity Service The Saga Annuity Service is provided by Legal & General. The Legal & General Group, established in 1836, is one of the UK s leading financial services companies. As at 30 June 2013, the Legal & General Group was responsible for investing 440 billion worldwide on behalf of investors, policyholders and shareholders. They also had over 7.3 million customers in the UK for their life assurance, pensions, investments and general insurance plans. Legal & General is one of the biggest providers of indextracking investments in the UK, managing 262 billion as at 30 June Phone: Website: The Money Advice Service is an independent service set up by the government to give free, unbiased advice on money matters. Their website has informative articles on retirement planning and buying a pension annuity. For more information, you can contact the Money Advice Service by: Phone: Typetalk: Website: *Calls to 0808 numbers are charged at the same rate as 0800 numbers. Buying a pension annuity from the Saga Annuity Service 7

8 The Saga Annuity Service is provided by Legal & General Assurance Society Limited. Saga Personal Finance is a registered trading name of Acromas Financial Services Limited, which is registered in England and Wales (Company No ). Registered office: Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE. Acromas Financial Services Limited is authorised and regulated by the Financial Conduct Authority. Legal & General Assurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. CSB-AF0270 LG/BR/MAS/A4/314