Finding you the best annuity rate based on your own unique requirements is our goal.

Escalating Annuities

When you purchase an annuity, you receive an income that will be paid for the rest of your life. However, the type you choose will have a big impact on the actual amount you receive.

You need to consider what level of risk you want to take, whether to protect against inflation through retirement, if anyone is dependent on you, how much control over your investments you want, what charges are payable, whether you wish to leave an inheritance for family, how the general state of your health is and if you smoke or ever have smoked.

Should I Choose a Level or Increasing Annuity?

The next thing to consider is whether you need an income that increases every year. Annuities are available that will increase in line with inflation and there is also one that will increase by a pre-set fixed annual percentage. There are also level annuities, which, as the name suggests, will provide the same income amount every year without change.

Level Annuities

Level annuities tend to be the most popular. This is possibly due to the fact that they will offer the highest income amount from the beginning. Although this might seem tempting at the time, an annual inflation rate of 4% would actually halve the effective buying power of the income in 18 years.

However, if you choose an annuity with inflation protection, your starting income will be a lot lower. Although this would increase over time, it could take many years to match the amount the level annuity pays.

Increasing Annuities

You will need to consider your retirement plans before deciding if you want an increasing annuity. It may be that you have retired reasonably young and want the most income during your healthiest earlier years of retirement, or you may want a plan that would give you equal purchasing power over time.

If you have a partner it is also important to consider whether the pension also needs to provide him or her with an income.

The answers to all of these questions may depend on your current state of health and how long you think you will live. An enhanced annuity paying a higher rate may be available if your health is poor and the long-term outlook does not look so good.

An annuity escalating at 3% per annum could reduce the initial pension of a 65-year-old man by 25%. In this case, he would need to live around 20 years for this option to be more beneficial than a level annuity of equivalent amount.

The best option will always depend on individual circumstances and it is advisable to seek independent financial advice before entering into any annuity agreement as it cannot be changed after you have bought one.

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