Q. Do I have to purchase an annuity?
You have no compulsion to purchase an Annuity, and in fact compulsory annuitisation at age 75 has been scrapped.
You can choose to take either a fixed term Annuity and Income Drawdown/Unsecured Pension which could also qualify for you for a Flexible Drawdown. For a full description, please see the definitions in the Types of Annuities and Pension Incomes section.
Q. What happens if I suffer a change of health having purchased my annuity?
A. As an Annuity is a measure for life, should one’s circumstances change, such as a change in health, you would be unable to amend your Policy terms.
Q. Will I get a better rate is my health is impaired?
A. Each case will be individually underwritten, and where there is a significant consideration in relation to impaired health, there is a strong likelihood that an Annuitant would qualify for an enhanced rate.
Q. As a smoker, will I get a better annuity rate?
Smokers will qualify for Impaired Life Annuities through their smoker status. The actual enhancement will depend on the amount and type of tobacco smoked.
Q. Is my offered annuity rate guaranteed?
Most annuity rates are guaranteed for 14 days.
It is usually the case, however, that from original consultations and illustration, there will be some slight change to the Annuity rate, but at all points best advice will be demonstrated on the purchase of an Annuity to ensure that the Annuitant is receiving the most income for the relevant Pension Fund.
Q. How secure is my annuity?
In the purchase of an Annuity, Cambrian would provide the Annuitant with background information in relation to the financial strength of the relevant insurance company.
Nonetheless, there is always a concern that the insurance company which provides the Annuity could become insolvent at some point in the future. There is protection provided in legislation, and in particular the original protection for a Policyholder was introduced in the Policyholder Protection Act 1975 where the Policyholder Protection Board acts as an industry-funded safety net when a UK insurance company becomes insolvent. ?
Under the Policyholder Protection Act 1997 this protection covers a purchased Life Annuity and compulsorily purchased Annuity. In the first instance the Policy Protection Board must initially seek to transfer the ongoing Policies of the insolvent insurer to another company. The Policy Protection Board must ensure that the Policyholder will receive 90% of the future benefits from the Annuity up to an income of £20,000 per annum.
Q. How long will my annuity take to be arranged?
A. A typical time is 6–8 weeks, although this can be more dependent on the standard procedures of your current pension provider.
Q. Do I have to buy my annuity from my current pension provider?
There is no compulsion to purchase your Annuity through your current pension provider, in fact recently a Government White Paper was released which indicated that exercising your Open Market Option (going to the market to obtain the greatest Annuity for your pension monies) could become compulsory.
In some instances there can be a difference of up to 40% between the best and the worst Annuity providers, and it is clearly demonstratable that exercising your Open Market Option to obtain the greatest income is in the Annuitant’s interests.
Q. Do I have to build any set benefits to an annuity?
Protected Rights pension monies (money that has been built up by being contracted out of the State pension) has to be built with a 50% spouse’s pension. There are no obligations to purchase any other benefits, beyond those which are required, through the purchase of an Annuity.
Q. What is the guaranteed period?
A. Guaranteed period is the period in which the Annuity is guaranteed to be paid to your Estate, or spouse, in the instance that the Annuitant dies soon after purchasing the Annuity.
Q. What is an Annuity?
A. An Annuity is an income which is bought via your Pension Fund, which is usually both for life and immune from risk. Once bought, an Annuity is, usually, irreversible.
Q. What is tax-free cash?
Tax-free cash, or tax-free lump sum, is the lump sum that you are allowed to take, currently 25%, tax-free from your Pension Fund.
Q. What is an A Level Annuity?
A. A Level Annuity is an income that does not increase with inflation, and therefore is eroded in real terms, although it does offer an increased initial Annuity rate than an Indexed Annuity.
Q. Which is better, an Indexed or A Level annuity?
A. This is a personal specific preference, and any consultation with an Adviser would see a demonstration of cumulative value over time through each route assuming set rates of inflation. It can however be demonstrated that an Indexed Annuity is likely to yield a much greater cumulative value from your Pension Fund the longer you live, whereas a Level Annuity will yield a much greater cumulative value from your Pension Fund over the short term.