Conventional annuities are also known as standard or traditional lifetime annuities and are the most common annuity in the UK. In return for the pension pot you have built up over the years leading to your retirement, your chosen annuity provider will provide you with guaranteed income for the rest of your life. You will therefore receive the income with no concern for how the financial markets will affect your fund.
You can tailor your conventional annuity to best fit your requirements and to give you further peace of mind:
You can guarantee the period in which your annuity is paid. This is usually for a period of 1 to 10 years and gives you security that your dependants will receive funds if you were to die early in your annuity lifecycle.
Choosing a guarantee period will mean you will receive less income at the outset and if you live past your guarantee period, your payments will cease.
A joint-life annuity allows you the option of switching your income to your spouse, civil partner or other dependent if you die before them.
You can choose how much of your income they will receive after you die but the amount you choose will impact on the annuity rate you can expect to receive in your retirement.
You can protect yourself against the effects of inflation by linking your annuity to the Retail Price Index (RPI) which measures the average change in the price of certain goods. Choosing this option will mean you receive a lower level of income at the outset.
You can also choose to increase your annuity by a fixed percentage (as opposed to linking the increase to the RPI). This won’t guarantee to increase in line with the RPI but will increase by the amount agreed at the outset.
Value Protected Annuity
You can choose to protect a percentage of your pension pot (up to the full amount) so that the protected amount (less the gross income already paid to you as income) is paid to your beneficiary when you die. The amount paid out will be taxed, currently at 55%.
These options are all designed to give you peace of mind and you will have to weigh up the fact that they will mean a reduced annuity rate at the outset. You should get sound financial advice to weigh up your options and to decide on the best annuity that suits your circumstances.