Annuity & Pension questions & answers

We understand that you may have lots of questions about your pension(s) and how annuities fit in with potenatially generating your pension income, so we have collected questions from our customers and answered them to help you find the answers quickly and easily.

• What is an 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 or an investment plan eg. SIPP with and if you choose, you can take as much as 25% as a cash payment.

• What is a SIPP?

  • A Self invested personal pension (SIPP) is a tax efficient way of either saving for your retirement with monthly contributions or a lump sum or a combination of both.

    They are flexible and are under your control; you manage your money and invest it in the funds and shares that you select.

    If you are novice and not so confident about investing in the stock market and other various investment options then most "platform providers" have a selection of ready-made portfolios you can choose from.

    They also appeal to the savvy investor as it allows them to pick and choose their investments and make regular trades if they wish to do so.

    With a low charging structure and readily accessible on the internet and mobile phones SIPP's have become a popular way to manage your pension.

• How much will your annuity service cost me?

  • Over50choices offers free annuity guides and information and have teamed up with Age Partnership and can provide annuity and pensions advice if you wish

• 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. 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?

  • 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 could 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?

  • No, you have several options since the changes in 2015.

    You can purchase an annuity with your pension pot, but you don't have to do it through your company scheme if you have a pension scheme through your employers.

    You could also take some as cash and or use an alternative to a annuity known as a drawdown or flexible pension using a  SIPP - you can find out more about your pension options here.

• 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 Age Partnership are on hand to help

• How do I calculate my pension income?

  • When you approach retirement you will start to consider what your income will be when you leave employment, hopefully over the years you will have contributed to at least one pension scheme.

    Your income needs may also change when you retire as your childrem may have fled the nest and the mortgage will have been paid off, but whatever your circumstances it's a godo idea to consider how much income you need.

    You will of course receive the state pension if you have reached normal retirement age in addition to any employment and or personal pensions.

    Once you have established your total pension pot you can use a pension income calculator from a variety of websites to give you a good indication of what your pension income is likely to be, here at Over50choices we have teamed up with Age Partnership who are pension specialists.

    At this point you should also consider whether you need to take pensions advice to help you make your money work hard for you in retirement.

• What is a defined benefits pension?

  • A defined benefits pension scheme is one that you will have with your employer, current or previously, and will "define" at your retirement what your income will be, usually based on a percentage of your final salary.

    They often come with other benefits such as life insurance and pensions for your spouse and children.

    Under the new pension rules you are no longer bound to keep this type of pension with the employers scheme, but you should think very carefully before transferring it elsewhere due to the potential additional benefits.

    If your defined benefits scheme is worth more than £30,000 it is a regulatory requirement that you take pensions advice.

• What is a defined contribution pension?

  • A defined contribution pension scheme is one that you and, if applicable, your employer makes contributions usually monthly to help build up and grow your pension pot for when you retire.

    When retirement comes you have a choice of where to invest your final pension pot or pension pots if you have perhaps changed jobs and had several pension schemes.

    The governments Money Advice Service has a useful explanation if you would like more information.

• Do I have to take pension advice?

  • You have to take advice on your pension if you have a finary salary/defined benefits scheme worth more than £30,000 or a defined contribution scheme worth more than £30,000 where there is a guarantee about what you will be paid when you retire, outside of this the choice whether to take advice is up to you.

    It could of course be prudent to take advice when large sums of money are involved and a good place to start coudl be the governement's Pension Wise Website.

• How do I find any lost pensions?

  • If you have had more than one job where you paid into a pension scheme the chances are you have left behind some pension pots, but don't worry you can track them down with the help of the governments pension tracing service here.

• How much is my pension pot worth?

  • Firstly you should establish whether you have more than one pension pot, if you are not sure then you can use the pension tracing service. Once you have established the value of your total pot you can then use an online pension calculator to get an indication of the approximate income you could derive from your money.

    The Age Partnership pension calculator might be a good place to start and you can get a quick idea by clicking the link here.

• What happens to my pension pot when I die?

  • Depending on where you have invested your pension pot will determine what happens to it when you die.

    If you have invested in a drawdown pension arrangement then in the event of your death the money will be returned to your beneficiary less the standard nominal fees.

    If you have invested in an annuity then upon your death the money left is lost and not returned to your estate unless you have opted for a spouse/partner and or protected annuity.

    Your financial adviser can help you with this.