Conventional Annuities

An annuity is a guaranteed income for life in exchange for a lump sum of capital. The most common form of annuity is the Compulsory Purchase Annuity (CPA) whereby the capital is built up via a pension scheme and may be utilised at any age from 50 onwards (this will increase to age 55 from April 2010).

The level of income is dependent upon age, gender, annuity rate offered by the provider, size of fund and options selected. The annuity rate will differ greatly dependent upon the provider and unfortunately, many people are unaware that they have the right to choose the annuity provider that will give them the highest income.

This ‘right to choose’ is called The Open Market Option (OMO). A recent survey showed that 2 out of 3 people purchase their annuity from the same provider with whom they built up their pension. This can be a very costly mistake as there is no opportunity for someone to change their mind if the wrong provider is selected.

Advantages
• It provides a guaranteed income for life.
• Tax free lump sum is available at outset.
• You have the option for your income to increase at a fixed rate to help combat the effect of inflation.
• You have the option for your spouse to continue to receive an income after your death
• Simple to understand and no investment risk.

Disadvantages
• Once you select your income level it cannot be varied due to changes in your personal circumstances.
• Once you have purchased your annuity you cannot switch to a different annuity provider.
• Once you have selected any options such as widow/ers benefit and your spouse pre-deceases you, these options cannot be changed.
• There is no opportunity for taking part in future investment returns.

Suitability
The conventional annuity is likely to suit an individual with a relatively small pension fund (under £100,000) and a cautious attitude to risk who prefers to have a guaranteed income without investment risk.

Complete the enquiry form now