Income Options

What You Need To Know

An annuity is an investment, which converts the lump sum you’ve built up from your pension fund(s) into an income for the rest of your life.

When it is time to convert your pension fund into an annuity there are a number of options to consider.

The following table gives a guide to these options and how they will affect the level of income you may receive. You may then tailor the annuity to suit your needs.

NOTE - If you do not include an option at the commencement of a policy you are not able to add it at a later date.

OPTION ANNUITY PROVISION CONSIDERATIONS
Single Life Annuity
  • Pays you an income for the rest of your life
  • Pays you a higher income than a joint life annuity but there is no provision for your spouse/partner/financial dependant if they survive you
Joint Life Annuity
  • Pays you an income for your lifetime. Upon death your surviving spouse/partner/financial dependant will continue to receive an income at a level agreed at the commencement of the annuity
  • The level is a percentage of your income, normally 100%, 66% or 50%.
  • The spouse/partner/financial dependant’s pension will continue for their lifetime
  • Pays you a lower income than a single life annuity
  • The higher the level of spouse/partner/financial dependant’s pension, the lower your initial income

OPTION ANNUITY PROVISION CONSIDERATIONS
Level Income
  • Pays you a fixed income, which is set from the outset of the policy
  • Pays you a higher initial income than an increasing annuity
  • As the income is fixed, inflation could erode the value of your income
Escalating Income
  • Pays you an income that increases each year by a fixed percentage or varies in line with the Retail Price index (RPI)
  • The initial income will be lower than a level annuity, but will increase over time
  • It can take a number of years before the income reaches the amount it would have been with a level annuity
  • If you choose to have your income change in line with the Retail Prices Index (RPI) your income could go down if the price of goods and services included in that index are lower than they were one year earlier

OPTION ANNUITY PROVISION CONSIDERATIONS
With Guarantee Period
  • Your income will continue to the beneficiary of your estate on your death if you die within the guarantee period
  • This can be between 1 & 10 years (usually a 5 or 10 year period)
  • Your income will be less than if no guarantee period is taken
  • Generally it is not an expensive option, especially on a joint life plan
No Guarantee Period
  • Your income will cease on death unless a joint life plan has been taken
  • Your income will be higher than an annuity with a Guarantee period
Annuity (value) Protection
  • Protect your premium if you die before age 75
  • The maximum lump sum payable is the premium received less any income paid or to be paid under any guarantee period
  • Your income will be less than if no annuity protection is selected
  • Any lump sum paid will be taxed at 35%

OPTION ANNUITY PROVISION CONSIDERATIONS
Payment Frequency Monthly,Quarterly, Semi-Annually, Annually
IN ADVANCE
  • Your income is paid on the start date of your policy
  • Your income is paid out immediately
  • Your income could be less than the corresponding frequency paid in arrears
Payment Frequency
Monthly,Quarterly, Semi-Annually, Annually
IN ARREARS
  • Your income will be paid at the end of the chosen frequency of payment
    e.g a policy starting on 1st January will receive
    the first payment on 1st February if monthly in
    arrears is selected
  • Your income could be higher than the corresponding frequency paid in advance
  • An annually in arrears payment will pay the highest level of income in most cases

Page last updated November, 2009 ID 3259