Choosing the right annuity

This decision depends on your personal circumstances, particularly whether you have a partner who relies on your income. A single life annuity stops paying when you die, while a joint life continues paying (usually at a reduced rate) to your partner after your death. Consider this example for a £100,000 pension pot: - Single life annuity: £5,500 per year, stopping at death - Joint life annuity: £4,800 per year, reducing to £2,400 (50%) for your partner after your death Factors to consider include: - Your partner's other pension provisions - The age difference between you and your partner - Your partner's state of health Other assets available to provide for your partner - Whether your partner would benefit from your workplace pension Remember that choosing a joint life annuity typically reduces your initial income by 15-30%, but provides valuable security for your partner. Some people choose a single life annuity and use other assets or life insurance to provide for their partner, but this requires careful planning.

Enhanced annuities offer higher rates to people with health conditions or lifestyle factors that might reduce their life expectancy. Even relatively minor conditions like high blood pressure or diabetes could qualify you for enhanced rates. For example, if you have a £100,000 pension pot, you might receive £5,500 annually with a standard annuity. This could increase to £6,500 or more with an enhanced annuity if you have qualifying health conditions. A wide range of factors can qualify you for enhancement, including: - Medical conditions (from mild to severe) - Lifestyle factors (smoking, alcohol consumption) - Occupation (if it involves health risks) - Postcode (some areas qualify for better rates) It's crucial to disclose all health conditions when applying, as multiple conditions can have a cumulative effect on your rate. For instance, someone with both diabetes and high blood pressure might receive a higher enhancement than someone with just one condition.

Here's a breakdown of three annuity types you might encounter: - Level annuities provide a fixed income that stays the same throughout your retirement. - Escalating annuities increase each year to help protect against inflation - Variable annuities change depending on how the invested portion of your pension pot performs While level annuities offer a higher starting income, their purchasing power can be reduced over time by inflation. For example, a level annuity could start at £6,000 per year, while an escalating annuity could start at £4,200 but increase by 3% annually. Meanwhile, a variable annuity, with its tax-deferred growth and investment options, could potentially pay dividends that outweigh its higher fees (typically 2-3%) over the long term.

When you buy an annuity, you have two additional options: Immediate annuities: - Provides regular income starting right away - Offers 25% of your annuity payments as an initial tax free cash sum - Annuity rates are typically lower due to the immediate start - Good option for a lifetime annuity if you need income now Deferred Annuities: - Payments start at a future date you choose - Offers potentially higher income due to the growth period - Money grows tax-deferred before payments begin A financial adviser can help you compare deferred and immediate annuity payments and decide which best suits your need for regular income. You can also use an annuity calculator to see how delaying payments might increase the rates and find the best annuities for your situation.