In detail

When you're coming up to retirement, you'll have some big decisions to make

Making the right choice for your future

Converting your pension fund into a regular income is one of the most important financial decisions you'll make in your life. You don't have to make a choice until you're coming up to your chosen pension age; however it's useful to understand your options. It's particularly important to understand that, once you buy an annuity, it's terms usually can't be changed.

When the time comes, you should consult a Financial Adviser to make sure that any action you take is suited to your individual needs.

What is an annuity?

An annuity is simply a type of policy that provides you with a regular taxable income for life, in exchange for a lump sum payment. Annuities offer a number of options. For example, you can choose to take:

* The same amount of income every year, or
* Income that increases at a fixed rate (for example, 3% a year)

You can also choose to:

* Have an income paid to your spouse or partner on your death
* Choose a minimum term (five years, for example, during which the remaining annuity payments go to your estate if you die).

What kinds of annuity are there?

Broadly speaking, there are two kinds: Conventional (or 'Traditional') and Investment-linked ('Unitised') annuities.

Conventional annuities

This is the easiest and simplest kind of retirement income. The amount of gross income is fixed when you buy it and it's secure for life.

It's also easy to compare annuity providers (remember, you don't have to buy your annuity from your pension provider). The income you will receive is largely determined by your age, gender and interest rates at the time of purchase. You can compare what you would get in exchange for your pension fund from different providers.

If you choose a level annuity, your income is the same for the remainder of your life. If you choose to offset the effect of inflation by increasing it each year, your income will initially be lower than a level annuity.

Unitised annuities

The main difference with a unitised annuity is that, because it is linked to the stockmarket through unit-linked funds, it allows the potential for you to share in future growth. However, the value is not guaranteed and your income may fall as well as rise. Together with your financial adviser, you can choose from a range of unit-linked funds, depending on your attitude to risk.

What are Enhanced Annuities?

If you are in poor health to the extent that your life expectancy may be reduced, you may be able to ensure you are provided with an enhanced level of income when you most need it.

We offer enhanced terms on both Conventional and Unitised annuities, provided that we are notified of the impairment, and suitable medical evidence is provided at the time the annuity is set up.

Typical examples of the illnesses which could qualify for enhanced terms are: