Making your journey into retirement better. Fixed-term annuities. Your guide to the options available. Risk. Reinsurance. Human Resources.

Transcription

1 Fixed-term annuities Your guide to the options available

2 The journey... A FEW YEARS FROM RETIREMENT Time to take stock Your guide to working out what you need in Planning ahead Your guide to turning your pension and savings into income Practical tips and guidance Your guide to securing a rewarding Reviewing your plans at this point is really important. It could give you the reassurance of knowing that you re on track. And, if you need to make changes, it s not too late. APPROACHING RETIREMENT Time to decide Your guide to turning your pension and savings into income Pension drawdown Your guide to the options available Time to act Your guide to getting ready to retire It s important to make the right decisions for your future and now is the time to adjust your plans so they fit your needs, increase your level of security or boost your income. 2

3 For more information Visit the website at: Helpline number: Helpline What is a fixed-term annuity? A fixed-term annuity is a type of annuity that pays you a guaranteed income for a set period of time (normally up to a maximum of 25 years). You can invest part or your entire pension fund in a Fixed-term annuity. At the start, you can choose: n How long you want your plan to last for n Whether you want a regular fixed or increasing income paid for the term of your plan n What you would like to happen on your death before the end of the set term. You can choose a lump sum, continued income or both, payable to your nominated beneficiary(ies) At the end of the plan, provided you re still alive, the provider will pay a guaranteed maturity value. This amount is stipulated at the start; it s protected and isn t at risk to changes in investment conditions over the term of the plan. You can then use the guaranteed maturity value to buy the most appropriate pension product for your personal circumstances and income needs at that time. If you want to take any tax free cash from your plan, you should do this at outset before you apply for the Fixed-term annuity. What can l choose? Your options n Any term from three to 25 years (in whole years and months). You can usually buy a plan if you re 55 or over (maximum age 75). n The amount of regular income you want to receive. This would depend on: The size of the pension fund you invest The plan term Whether you would like your income to stay the same or increase each year by a fixed percentage (up to 8.5%) How often you would like your income to be paid n Optional death benefits: Dependant s income Guarantee period Value protection These options are explained in more detail later in this guide. Fixed-term annuities n 3

4 Changes in circumstances You can end your plan and transfer out at any time. So you won t have to wait until your plan is due to end if you don t want to. You can transfer out to another product at any time, for any reason, as long as financial advice has been given. Please note that your transfer value may be significantly less than your Guaranteed Maturity Value (GMV) if you transfer out in the early years or if investment conditions have worsened since you took the plan out. What would they pay out at the end of the plan term? The GMV is set at the start of the plan; it s protected and isn t at risk to changes in investment conditions over the term of the plan. Your plan s guaranteed maturity value will depend on: n The size of the pension fund you ve invested n The plan term n Your age n How much income you choose, if any, and how often you choose it to be paid n The death benefit options you choose n The annuity provider's views about current and future investment markets Although the provider guarantees the amount payable at the maturity date, they can t guarantee what income this will provide. This depends on the economic and investment conditions, and annuity rates available, at that time. What can you do with your GMV? Provided you survive until the maturity date, you can use your GMV to: n Buy another Fixed Term Annuity n Buy a lifetime annuity n Transfer to Pension Drawdown n Take the fund as a lump sum, subject to income tax What happens if I die during the term? You can choose from the following options at outset: n Dependant s income an income payable to your dependent at a fixed rate until the end of the fixed term. Any guaranteed sum provided for at outset would then be payable. n Guarantee period the income level selected would be payable for the remainder of the guaranteed period. Any guaranteed sum provided for at outset would be payable at the end of the fixed term selected at outset. n Value protection the difference between the amount paid and the original amount invested would be payable. If you are under age 75 when you die, this payment will normally be tax free, otherwise it will be taxed at either your dependent's marginal rate of tax if they continue in drawdown or at a rate of 45% if they take it as a lump sum. 4

5 Differences between Fixed-term annuities and Lifetime annuities How long does it last? If you get an illness after taking options can it be changed to enhanced? Can I keep the same annuity rate for life? Can I move into drawdown? Can they be enhanced due to health or lifestyle? Fixed-term Any term from 1 to 25 years Yes you can either wait until the end of your fixed term and then get and enhanced annuity with your GMV or transfer out to an enhanced annuity product within your term time No at the end of your fixed term if you decided to get an annuity you would have to use the annuity rate at that date. These may have decreased. Yes No Lifetime Until your death (if you have selected a joint life annuity then this will last until you and your spouse/partner have also passed) No once a lifetime annuity has be brought you are unable to change your annuity Yes this is for life. This means that you cannot re-apply if rates go up, but also will not be affected if rates go down No Yes Advantages of Fixed-term annuities n A guaranteed income is provided for a fixed term n A guaranteed maturity sum is paid at the end of the chosen term which is known and fixed at outset. n They provide flexibility to revisit and amend your income options at the end of the fixed term. n They can offer death benefits at outset with Value Protection, which returns a lump sum in the event of the member's death during the term (subject to tax where applicable). n You could benefit from increased annuity rates at the end of the fixed term as you will be older and your health may have deteriorated, which may provide an enhanced income using an enhanced or impaired life annuity. Risks of Fixed-term annuities n Annuity rates may be lower in the future and therefore you may have been off purchasing a lifetime annuity at outset. n If you die before the end of the fixed term, and no additional death benefits have been selected, income payments will stop and the remaining fund will not be paid if no death benefits were requested at outset. n Once selected at outset, benefits cannot be changed during the plan term. n The higher the income selected at outset, the lower the guaranteed maturity sum will be at the end of the term. This in turn will reduce the future level of income that can be obtained. IF YOU ARE IN ANY DOUBT ABOUT THE COURSE OF ACTION YOU SHOULD TAKE, YOU SHOULD CONSIDER SEEKING APPROPRIATE FINANCIAL ADVICE. If you do not have a financial adviser, the Financial Conduct Authority website provides information in relation to finding a financial adviser at: Fixed-term annuites n 5

6 Here to help Aon Retirement Service It s important that you understand the choices you have for your pension fund. By talking to us, we ll be able to help you decide what s right for you. To contact the helpline: n Phone n annuity.support@aon.co.uk You can also find detailed information on our website at Other sources of information Pensions Advisory Service This free service provides straightforward, personalised information to help you decide how to turn your pension fund into an income. n Visit n Phone n Use the Web Chat facility that the service operates from Monday to Friday (9am to 5pm) and Tuesdays (7pm to 9pm). See their website for details. n Or , using the online enquiry form. Money Advice Service This is an independent service set up by the Government. It provides impartial information and support that aims to help people make the most of their money. n Visit n Phone n Or, use the online chat facility. See their website for details. Pension Wise As part of the guidance guarantee that was offered by the government in light of the new freedoms of choice in they have set up Pension Wise. This site can help if you would like more help to understand your choices and how they work then you can use the new free government website How Pension Wise can help You ll be able to get help on the Pension Wise website, over the phone or face to face about: n what you can do with your pension pot n the different pension types and how they work n what s tax-free and what s not For advice If you need help working out what would be most suitable for your situation, consider speaking to an independent financial adviser (IFA). If you do not already use an IFA, you can find one in your area by visiting simply type your postcode into the search bar on the homepage. Before you appoint an IFA, check that they are registered with the Financial Conduct Authority. Go to and click the link on the homepage called 'Financial Services Register', or phone their helpline on

7 For further information Visit the website at: Helpline number: Helpline

8 Published by Aon Consulting Limited Copyright 2015 Aon Consulting Limited. All rights reserved. Registered office: Briarcliff House, Kingsmead, Farnborough, Hampshire GU14 7TE Registered number: Aon Consulting Limited does not accept or assume any responsibility for any consequences arising from any person using or relying on this information. Authorised and regulated by the Financial Conduct Authority.