Invested Annuity

Invested Annuity – For Security And Growth

In this Guide, we take a deep dive into Invested Annuities and explore how the security and growth they offer could benefit you.

Remember, before exploring the pensions market on your own, it’s always best to discuss your retirement plans with a financial professional.

What Is An Annuity?

In exchange for the funds in your pension pot, a life annuity pension will pay you a tax-free lump sum when you retire, plus a regular guaranteed income, no matter how long you live.

The most basic fixed annuity pension will give you financial security in retirement.

This is because the amount you receive is set when you buy the annuity.

You receive payments at regular periods of time during your retirement.  These can be weekly, monthly, quarterly or even annually.

There are other types of variable annuities that rise with inflation, or are linked to your health and life expectancy.  The amount you receive will also depend on the rate of interest, or annuity rate set at the time you buy it.

Annuity pension products should be considered as part of your retirement plan.

How Do Annuities Work?

The money you invest in your annuity is added to a combined fund shared by other customers in your annuity company.

This larger fund is invested by your annuity company on your behalf, and you receive a portion of this fund each month as a regular guaranteed income.

One benefit worth celebrating is the money in your annuity is tax deferred. This means you only pay tax on your regular annuity income if or when it goes over the HMRC £12,570 income tax allowance.

What Is An Invested Annuity?

Also known as a ‘fixed indexed annuity, an invested annuity gives you a guaranteed steady income, while allowing the value of your annuity to grow.

It works by setting aside part of your annuity fund as a guaranteed level of income that will be paid to you regularly for the rest of your life.  The remaining portion of your fund is invested.

If the invested portion of your fund performs well, you will receive a higher level of income.  However if markets dip instead of rise, you will still receive your pre-set guaranteed amount.

A pension adviser will help you determine your long term investment objectives and attitude to risk, so you feel comfortable about how your annuity fund will be invested.

By offering you security and the opportunity to grow your annuity income, an Invested Annuity gives you the best of both pension types – a combination of lifetime annuity and income drawdown.

How Do I Know Which Annuity Is Right For me?

It’s important to decide which type of annuity pension is right for you before you agree to buy an annuity, because once it’s set up, it may be impossible to back out.

An experienced and regulated pensions specialist will be able to help you tailor your pension plan and annuity product according to your individual situation. They will discuss all the types of annuity available as well as other pension options, such as income drawdown.

As well as Invested Annuities, other styles of annuity offer different benefits:

  • Lifetime   income is based on your average age life expectancy
  • Fixed-termreceive an income for a fixed period plus a ‘maturity amount’ after that
  • Temporary receive regular payments over a fixed period up to five years
  • Enhanced  offers a higher rate of income if your health and habits are poor
  • Impaired life higher rate if you have medical conditions and a lower life expectancy
  • Postcode based on your anticipated life expectancy according to where you live
  • Purchased  annuity bought with money not from your pension pot

You can also opt for a joint annuity if you have a spouse, and set aside an amount for inheritance.

What Factors Affect My Annuity Rate?

An annuity company will calculate an annuity rate quotation for you based on a number of personal factors that contribute to your overall health and life expectancy.

This will determine how much income they will pay out from your annuity.  The less time you are expected to live, the higher your income. If you are healthy and have a long life expectancy, your income will be lower.

The factors they will consider include your lifestyle choices, such as whether you smoke,  how much alcohol you drink. They will also factor in your weight and BMI.

What Happens At The End Of My Policy Agreement?

If you chose a fixed or temporary type of annuity that lasts for five or 10 years, then the policy will conclude at the end of the agreed period.

If you have no fixed term annuity in place, then the policy will end when you die. If you have a joint annuity then that will continue until both you and your spouse have died.

How Do Annuities Work When I Die?

If you chose a single annuity plan when you bought your annuity when you die, no further income payments are made and your plan is closed.

If you want to leave money to your spouse or children, you can choose a ‘capital protected’ or ‘value protected’ annuity which will pay out a portion of your fund as an inheritance.If you opted for a joint annuity, your spouse will continue to receive an income for the rest of their life after you die.

How Can CS Retirement Solutions Help Me?

Annuities can be complex and making sure you make the right choice is critical to your ongoing peace of mind and financial security during your retirement years ahead.

As financial services experts that specialise in annuity pensions, we can advise and guide you through the different types of annuity available.  Our experience and understanding of the annuity market will help you make an educated choice that will benefit you according to your unique personal circumstances.

Having the benefit of our experience will not only save you time, but it will also help you make well-informed choices. These choices will ensure your hard-earned pension pot is used wisely to achieve long term value for money.


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