Annuities overview – a guaranteed income for life
One of the options worth considering with your pension savings is buying an annuity. There are a number of different types but they all pay a guaranteed monthly, quarterly, half-yearly or annual payment until you die. In addition, if you select a guaranteed period, the payments will continue until the later of the end of the guaranteed period and your death. You can normally also select for a dependant to receive an income from the annuity after your death, and this will continue until they die.
We offer Standard Annuities and an Enhanced Annuity, which can offer you a higher income because it takes account of your health and lifestyle.
Our annuities are only available to our existing pension plan customers, unless you apply through a financial adviser.
With an annuity:
- You'll know how much the starting amount is and depending on the type of increase you select, you'll know how much any increases will be. (If you choose an income that varies in line with RPI, you won't know how much any increases will be, and your income could decrease if RPI is negative).
- If you choose a guaranteed period or an income for a dependant after your death, this will reduce the starting amount.
- You will be paid an income for the rest of your life.
- Once your annuity is set up, you can't cash it in or change the basis of your income, even if your circumstances change.
Benefits of a Scottish Widows Enhanced Annuity
- A Scottish Widows Enhanced Annuity offers a level of guaranteed income which takes into account your health and lifestyle.
- You might get a higher level of income if you have a medical condition or lifestyle that could reduce your life expectancy. Even if you think you're healthy, if you're a smoker, overweight or taking any medication you could receive a higher income than a standard annuity.
Shopping around for the best deal
With annuities you could get a higher income by shopping around. Also, it’s important to check whether you are eligible for an enhanced annuity, as you could get a higher income based on your health or lifestyle. Medical conditions and lifestyle factors taken into account will generally be the same across providers, although some providers will accept different conditions. It is likely that each provider will apply a different approach to underwriting health conditions and this could result in a higher or lower income being offered by them. Other types of annuities with a range of options will be available, however not all pension providers will offer them. So you must think carefully about what you want from an annuity as you cannot change your mind once you have bought it.
Other types of annuity include:
- Investment Linked Annuity – which pays an income for life, offers the chance of a higher income but there is investment risk and the income could go down.
- Value Protected Annuity – you can choose this option at the start when you take out your annuity. It returns a lump sum to your beneficiaries if you die without having received a return of the purchase price used to buy the annuity.
- Fixed-term annuities - this type of annuity, gives you an income for an agreed amount of time, usually between 3 and 20 years. It may also pay a specified 'maturity amount' when it ends which can be re-invested in another retirement plan.
Please note, these types of annuity are not available from Scottish Widows.
If you haven't already done so, you should speak to Pension Wise. This is an independent, Government-backed guidance service that offers free, impartial guidance. You can visit their website at www.pensionwise.gov.uk and arrange a call with them. We strongly recommend you do this before taking action. In addition, or alternatively, you can seek financial advice.
Before committing to buying an annuity, you should consider all of the pension options that may be available to you, such as taking a pension encashment or moving to an income drawdown plan. For more details of all your options at retirement, speak to a financial adviser, or see our "Retirement Planning" website.