Frequently Asked Questions
How will the 2014 Budget changes effect me?
There were some radical changes announced to how the pension system works in this years budget: following months of uncertainty about the future of pension annuities, the government announced sweeping reforms.
Or visit our recent pension articles with all the latest updates here
By far the biggest shake up is that from age 55, you can withdrawal the full amount of your "defined pension" pot, rather than only 25% currently. You can still take 25% tax free, but the rest will be taxed as explained on the gov.uk website using the link above.
If you are in a company "final salary" scheme you will not be affected, as your pension is based on your final salary and not a pot of money - if you have any doubts as to which scheme you are in, please ask your employer.
What is the open market option?
This is the right you have at retirement to shop around for a better annuity. Taking time to compare annuities
and shop around could result in you receiving a higher rate of income in retirement than if you were to stay with your pension provider
What is a Pension Pot
Your pension pot is the value of your pension savings; it’s the sum of money you use to buy an annuity with and if you choose, you can take as much as 25% as a cash payment.
How much will your Annuity Service cost me?
Over50choices offers free annuity guides and information, more of which can be found at Key Retirement, who we have teamed up with. Keys will not charge you a fee as they will receive a payment from your chosen provider: this will be explained to you.
How can I find out how much I have saved into my pension?
Each pension provider you have saved with during your working life should send you a pension statement outlining the current value and the expected or estimated value of your pension plan at retirement. If you don’t have any statements but you have details of your pension provider, then contact them in the first instance. To trace lost pensions, you can use the Pension Tracing Service
Do I have to use my entire pension fund to buy an annuity?
No - you are usually able to take up to 25% of your pension pot as a tax free lump sum if you want. This is called the Pension Commencement Lump Sum. Under current taxation rules for the 2013/14 tax year, if the total of all your pension funds is less than £18,000, you may take the entire amount as a tax free lump sum.
You can also leave your pension invested using a product called a drawdown pension. A drawdown pension allows you to draw some income (within government limits) from your pension fund as an alternative to taking out an annuity.
How will my pension plan provide me with an income in retirement?
If you have a money purchase scheme
, when you retire your pension will not automatically be converted into an income. You can use your pension pot to purchase an annuity or other financial products such as a drawdown pension. These products provide an income throughout your retirement.
Can an annuity be altered at a later date?
Once you have bought an annuity or enhanced annuity you can’t change it in any way. If you buy a fixed term annuity, you can change your benefits at the end of the plan term by reinvesting in another pension product.
It is therefore important to consider your options carefully before buying an annuity.
Do I have to purchase an annuity through my existing pension provider?
No - you don’t. You can often obtain an improved income in retirement if you shop around.
This process is known as taking the Open Market Option. Shopping around will give you the opportunity to search the whole of the market for the best rates and see whether you qualify for an enhanced annuity.
Do I have to take an annuity?
Not necessarily. It may be possible for you to draw your income directly from your pension fund. This is known as a drawdown pension.
It is important that you understand the advantages and disadvantages of this type of scheme. Drawdown pensions come with a number of additional risks and therefore before considering them it might be worth seeking independent financial advice.
I have a history of health conditions - can I still get an annuity?
Yes – in fact by having certain medical conditions you may qualify for an enhanced annuity which pays higher rates to people who may be generally unhealthy or have a lower than average life expectancy.
Is there a difference between annuity providers?
Deciding which provider to select is often driven by the income you receive and the features of the products offered. Some providers only offer certain benefits, so it’s important to compare on a like for like basis.
Can I get a better annuity rate if I'm a smoker?
If you smoke cigarettes, cigars or tobacco regularly, you need to disclose this when requesting a quotation as this may qualify you for an enhanced annuity. Because your life expectancy may be reduced when compared to the average, some specialist providers may offer more income than is available from a standard annuity.
Can I get a better annuity rate if I suffer from an illness?
Some illnesses do mean you qualify for an enhanced annuity rate. These are called enhanced annuities
. Providers base their rates on a number of risks, one of which is life expectancy. If there is a chance that your life expectancy could be deemed as shorter than average as a result of your illness, a specialist annuity provider could offer a higher income than what’s available with a standard annuity.
Will my partner get any money from my annuity when I die?
This depends on how you set up your annuity at the outset. Most annuity providers offer you the option to continue to provide an income when you die. These options include a joint annuity, guarantee period and value protection
To help you see how much extra retirement income you could get, why not use the quick and easy annuities calculator, then if you want more information, the experts at Key Retirement are on hand to help.