Retirement Income Options
A guaranteed annuity is an immediate annuity, guaranteed to be payable for a bare minimum time period regardless of
when the annuity purchaser passes away. They offer a selection of payment periods, normally for 5 or ten years:
• an annuity guaranteed for 10 years is payable for their whole life or ten years, whichever is the longer; and
• if the annuitant dies in the course of the guaranteed time period, the remainder of the guaranteed instalments will be payable to the estate, though the may possibly pay a commuted cash lump sum instead.
A guaranteed annuity is more expensive than the comparable non-guaranteed annuity, due to the fact on average the life
office will be paying out for more time.
Joint life and last survivor annuities
Where an annuity is getting employed to give retirement income for a married couple it's not usually advisable
to get a single life annuity. If the annuity purchaser died 1st, payments would end and the remaining spouse
would be left with no income. Joint life and last survivor pay an annuity for the joint lifetimes of the 2 annuitants.
They possess the following primary features:
• payments usually carry on in full after the first death but sometimes decrease, e.g. by one third; and
• these types of annuities may be in advance or arrears, with or without proportion to the date of the 2nd death,
and with or without guarantee, the same as Single life annuities:
- the guarantee would only be on the 1st named life.
An alternative to a joint life and last survivor annuity would be to have two individual annuities:
• the first would be an immediate annuity on one life; and
• the 2nd, a reversionary annuity on the other life.
The reversionary annuity will provide an annuity for life but only beginning on the passing away of the annuitant. The annuities referred to thus far are level annuities however, there are some organizations that provide rising
annuities where the instalments increase by a fixed percentage (three % or five %) each year.
This may be an aid to offset the problems of inflation, although the rate of inflation could be higher than the fixed rate of increase. A level annuity will give you a much higher income for same premium than the initial income via an
increasing annuity. A number of offices have annuities connected to the retail prices index (RPI), where the income is connected to
movements in the RPI. The initial annuity amount is significantly lower than for a level annuity however there is
complete protection from inflation.
Capital protected annuities
With a capital protected annuity the whole annuity payment is guaranteed to be at least as much as the premium. When the annuity purchaser becomes deceased the office adds up all the annuity payments made and compares this with the premium. If total payments are lower than the premium the life office will pay the remainder as a capital amount to the deceased annuitant's estate. This isn't susceptible to income tax but may possibly be liable to Iht.
These types of annuities tend to be more expensive than unprotected immediate annuities but do guarantee that the estate will not get back less than just the premium.