Annuities

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An annuity is an investment that guarantees to pay a secure income for the rest of your life, no matter how long you live.

In the UK, there are various types of annuities such as pension annuities (compulsory purchase), purchased life annuities (voluntary purchase), investment linked, with profits and enhanced / impaired life annuities.

At SFS we have a specialist telephone based team who deal with annuities on a daily basis and use their expertise to get the best deal for you. Not only do we shop around the leading companies but we do all the paper work for you in-house - all you have to do is check and sign it before returning to us. It’s as simple as that.

Buying an Annuity

A lifetime annuity converts a pension into an income for life, however long you live. Lifetime annuities are sold by life insurance companies and the level of income you receive depends on a number of factors including your age, gender, health, investment performance (where applicable), annuity rates and any additional options you may include, these options can range from:-

Single / Joint Life

A single life annuity pays a high level of income, but stops when you die. If you are married, it is common to have a joint life annuity. This means that annuity payments will continue to your partner if you die first. You can choose how much income your partner will receive after you have died. For example, a 50 per cent joint life annuity means that when you die your partner will receive 50 per cent of your pension until he or she dies.

Guarantee Period

Annuities can be guaranteed to be paid for a certain period of time. This means that if you die soon after purchasing an annuity, your estate or dependent will continue to receive income payments. If you bought an annuity without a guarantee period, and died the day after, your income would stop, and your family would get nothing (or a reduced amount it was a joint life annuity) and the insurance company would make a huge profit. To protect you against this unlikely event, you can guarantee that your annuity payments will continue to be paid for period of time. For example, if you select a 10 year guarantee and died after two years, your payments would continue for the next 8 years.

Protection

There is now a new option called Annuity Protection. If you die before reaching age 75 and you have not received a certain amount of annuity payments by that time, the balance will be paid as a lump sum. This lump sum is called an Annuity Protection lump sum death benefit and is taxable at 35 per cent. These annuities are also known as "value protected" or "money back" annuities. For example, if you purchased an annuity for £100,000 that paid an income of £7,000 per annum and you died after 5 years, the difference between the capital invested and the total of annuity payments received would be £65,000. Therefore, after deducting tax of 35 per cent, a lump sum of £42,250 would be paid to your family.

Escalation

A level annuity pays the highest income at the start and does not increase in the future, whereas an escalating annuity starts at a lower level, but increases each year. The increases can be constant, for instance, increasing by 3 per cent each year, or the increases can be linked to changes in the retail price index, more commonly known as index linking. It is only natural to want the highest income, but you shouldn’t forget the effects of inflation. An increasing annuity may start lower, but it will pay out more income in the future.

Compulsory Purchase Annuities

The tables below show the gross annual annuity payable monthly in advance for males and females (Source: Moneyfacts Investment Life and Pensions).

Level without Guarantee - purchase price £10,000

Male	55yrs	60yrs	65yrs	70yrs	75yrs
Average	£600	£661	£756	£888	£1,099
Lowest Rates	£532	£582	£652	£751	£897
Highest Rates	£767	£752	£894	£1,112	£1,445

Female	55yrs	60yrs	65yrs	70yrs	75yrs
Average	£575	£624	£694	£803	£959
Lowest Rates	£492	£550	£605	£682	£793
Highest Rates	£787	£768	£838	£1,002	£1,238

RPI-Linked without Guarantee - purchase price £10,000

Male	55yrs	60yrs	65yrs	70yrs	75yrs
Average	£336	£404	£494	£623	£820
Lowest Rates	£291	£343	£413	£512	£656
Highest Rates	£412	£506	£643	£854	£1,175

Female	55yrs	60yrs	65yrs	70yrs	75yrs
Average	£308	£365	£441	£546	£697
Lowest Rates	£265	£307	£364	£441	£551
Highest Rates	£387	£467	£580	£738	£967

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