Buying a pension annuity
The income you’ll receive will depend upon a number of factors, the main ones being:
The value of your pension fund
The level of income we’ll pay will depend on how much money you have in your pension plan and the annuity rate you are offered. Putting more money into a pension annuity at the start means it will pay you a higher income. With the Saga Annuity Service, you only need a pension fund of
£1,000.
Your age
The amount of income you receive from your pension annuity depends on how long it is expected to be paid out,
the level of income you receive. The Saga Annuity Service will automatically ask you a few questions to see if you qualify for an enhanced annuity rate under such circumstances.
Investment market conditions
Different annuity providers will have different ideas about future investment returns, which will affect the terms they offer.
That’s why you may wish to compare the quote from your pension provider with one from the Saga Annuity Service, who may be able to help you achieve greater retirement income.
Whether you take a cash lump sum
You can use all of your pension fund to buy an annuity, or you’re allowed to withdraw up to 25% of its value in the
How much regular income will I receive from my pension annuity?
When you come to retire, you will have some important decisions to make.
Probably most important of all is how you will generate a regular income, on which you’ll have to live for the rest of your life.
If you’re a member of a salary related or ‘defined benefit’
pension scheme, your income will typically be a proportion of your salary – easy!
However, if you don’t fall into this category, the pension fund that you’ve built up over the course of your working life won’t automatically provide you with an income.
In order to turn your pension fund into a regular income you may have to buy what is called a ‘pension annuity’.
Quite simply, an annuity pays you a series of regular income payments (a pension). Once in payment, it’s then payable for the rest of your life, no matter how long you live.
Where can I buy a pension annuity?
The Saga Annuity Service offers you access to a pension annuity available exclusively through Saga. The service and annuity are provided by Legal & General Assurance Society Limited.
You can normally buy a pension annuity from the provider you took your original pension plan out with, or you can shop around and choose another provider if they can offer you a better deal. This is called taking your ‘Open Market Option’.
In addition, if you have a number of pension plans taken out with different providers, you may wish to combine or
‘transfer’ them into one. By doing so you may increase your buying power.
There are a number of different types of annuity available on the market. You need to make sure that the annuity you buy is the one that best suits your circumstances.
Why do I need to think about buying a pension annuity?
What types of pension annuity does the Saga Annuity Service offer?
Once you have bought an annuity and it has been set up, you are tied to that annuity for life. You cannot change to a different one. Therefore, it’s important you understand the differences between the various types of annuity that we offer and the payment options available. Deciding on what’s best for you will depend on your overall needs and personal circumstances.
Pension annuity
A pension annuity will pay you an income for the rest of your life. You can choose from the outset either a fixed income, which will pay you a set amount each year, or one that increases year after year.
If you decide to take a fixed income, it will never fall or go up. It may therefore be exposed to the effects of inflation, which could mean that your money will not stretch as far in years to come.
Alternatively, an increasing income may help guard against the possible effects of inflation. You can choose to have your income increase each year by a fixed percentage of anything up to and including 10%, or you can choose to have it linked to increases in the Retail Prices Index (RPI).
RPI increases are not available on a pension annuity if you qualify for enhanced rates or Annuity Plus (see below).
It’s important to note that the starting level of an increasing income will be lower than the starting level of a fixed income.
Annuity Plus
If you suffer from certain medical/lifestyle conditions, then you may be eligible for a higher income than that offered by a standard pension annuity.
Annuity Plus is primarily aimed at the following:
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smokers
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people who are overweight or underweight
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people with high blood pressure
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people with diet controlled type 2 diabetes.
In order to be considered you will need to answer some simple questions about your health. The information you disclose will then be assessed to decide whether you’re entitled to a higher income.
Enhanced annuity rates
If you have a more serious health complaint then you may
be eligible for an enhanced annuity rate. You’ll need to
complete a detailed medical questionnaire but it could
mean you receive additional income. Also, if you choose to
provide a spouse’s, registered civil partner’s or dependant’s
income, then you may be eligible for a higher income based
on their health.
What do I need to consider?
What is my attitude to risk?
Your attitude to risk may go some way to determining the sort of pension annuity you buy. For example, would you prefer to receive exactly the same income each month or have it increase by a set amount? Or would you like to benefit from potential growth in the stock market, even if that means some uncertainty and risk?
If your attitude is to take a more cautious approach, then you’re more likely to want to consider a conventional pension annuity.
If, on the other hand, you would like to adopt a more adventurous approach, and you understand the possible risks that you may face if you do so, then you could consider retirement income drawdown options.
What about my dependants when I die?
A pension annuity will pay you an income for as long as you live and will normally stop being paid when you die. You may therefore want to consider how you can provide for those you might leave behind.
When you buy your pension annuity you may want to include:
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a spouse’s, registered civil partner’s or dependant’s income, payable after your death, and/or
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a guaranteed minimum payment period, where your income will continue to be paid even if you die within that period.
If you choose either option, then your starting level of income will be lower.
How can the Saga Annuity Service help you?
A Saga pension annuity provided by Legal & General can provide you with a regular income, payable for the rest of your life.
Retirement income drawdown options are not available through the Saga Annuity Service, but can be accessed through the Saga Financial Planning Service, provided by my wealth, on 0808 101 5005*.
How can the Saga Annuity Service help you?
You can choose:
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a spouse’s or registered civil partner’s income option. Or, if you’re not married or in a registered civil partnership, then you can choose for an income to be paid to a financially dependent partner. The amount payable can be set at any amount up to a maximum of your own income, and/or
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a guaranteed minimum payment period option. In most circumstances you can normally choose a period of between one and 10 years (in whole years only).
*Calls to 0808 numbers are charged at the same rate as 0800 numbers.
Payment options
Payment frequency
You have the option of how and when you have your income paid. Although most people opt for a monthly income, you can choose to have your payments made to you on a quarterly, half yearly or yearly basis, and either at the start of the payment period (‘in advance’) or at the end of that period (‘in arrears’).
An income for your dependant
A pension annuity will normally pay you an income for as long as you live and will stop being paid when you die.
However, you can make arrangements for an income to continue to be paid after your death to a surviving spouse or registered civil partner. Or, if you’re not married or in a registered civil partnership, you can choose for an income to be paid to a financially dependent partner. If you have
someone who is financially dependent on you and he or she has no other source of income, then it’s certainly worth considering.
If you choose this option, then your starting level of income will be lower.
Guaranteed minimum payment period
Whilst your annuity will pay you an income for as long as you live, by choosing a guaranteed minimum payment period your income is guaranteed to be paid even if you die within that period. You can normally select a period of up to 10 years (in whole years) and, should you die during that time, any remaining income payments will be paid to the person nominated by yourself, or to your estate. If you select a guaranteed payment period your starting level of income will be lower.
*Source: Latest figures from the Office for National Statistics, 2012-based Expectation of Life Table.
What about my state of health?
Your state of health may have a bearing on how much income you’ll be paid. For example if you smoke, or you’re in ill health then you could be entitled to a higher income.
In determining the amount of income you’ll be paid, it may be that you’re eligible for ‘enhanced’ terms meaning you may receive a higher level of income. This is because the life expectancy of someone who is suffering from poor health may be shorter than that of someone who has a healthy lifestyle and is in good health.
How long will I need my income?
You may be surprised at how long you may need to rely on your income. In 2014, a man aged 65 could reasonably expect to live a further 21 years; and a woman of 65 a further 24 years.* Therefore you need to consider the possible effects inflation may have on your income year after year. For example, if inflation averaged 2.5%, after 10 years the value of £100 in today’s money would be only £78; and after 25 years, just £54.
When you buy your pension annuity you can help guard against the possible effects of inflation. You can choose to have your income increase automatically each year.
It’s important to note that the starting level of an increasing income will be lower than the starting level of a fixed income.
How can the Saga Annuity Service help you?
If you have certain medical/lifestyle conditions then you may qualify for Annuity Plus, which will pay you a higher level of income than a standard pension annuity.
If you suffer from more serious health problems then you could qualify for an enhanced annuity rate which could significantly increase your income in some cases.
How can the Saga Annuity Service help you?
An income from a Saga pension annuity can be linked to:
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a fixed level of increase of up to and including 10% a year, or
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