Frequently asked questions
What is an annuity (also known as secured pension)?
An annuity is a secure income normally paid for the rest of your life. During your working life your pension builds up a pot of money. An annuity is the regular income that is bought with your pension fund at retirement. Once set up, the annuity is normally fixed and offers a secure income for the rest of your life.
Do I have to take an annuity?
No, not necessarily. New pension rules have changed some of the options available to you at retirement. What are the alternatives? But an annuity is the safest option and this is important because you no longer have the ability to earn a replacement income.
What is income drawdown (unsecured pension)?
Income drawdown is the process of drawing an income directly from your fund as opposed to using it to buy an annuity. Your fund remains invested and you draw an income. There is no minimum amount that has to be drawn and the maximum is approximately 120% of the annuity that could have been purchased (reviewed at least every 5 years up to age 75).
What is ASP?
ASP stands for alternatively secured pension, and is essentially a type of income drawdown after the age of 75. This means if you choose not to buy an annuity before the age of 75, you can start or continue to draw an income directly from your pension fund. The maximum income limit for ASP is approximately 90% of the annuity that could be purchased on the open market at age 75. The minimum is 55%. These limits are reviewed each year, based on the actual value of the fund and an assumed age of 75.
Where can I buy an annuity?
When you retire you will most likely receive an annuity quotation from your pension provider. Many people do not realise that you do not have to take your annuity from that provider and in most cases it will benefit you not to do so. Instead you can choose to take the 'open market option'. This means you find another company to provide your annuity, and if you search a number of providers the chances are you'll find a better rate.
You can obtain annuity quotations direct from some annuity providers although this can be a lengthy process and some only deal with brokers. Alternatively, the Hargreaves Lansdown's annuity service searches a large number of providers for you to find you a competitive rate, and then if you choose to proceed we'll handle the administration for you.
Can I change my mind once I've bought an annuity?
No. Once you have purchased an annuity you cannot normally change to a different provider or get your money back. It is therefore important you consider your options and choices carefully and seek professional financial advice if you are uncertain. Most providers however may offer a short cooling-off period where you may be able to cancel.
What happens if I die after buying an annuity?
If you die after taking an annuity then typically there will be no further payments or lump sum paid to a beneficiary. However, when purchasing an annuity you can select certain guarantees to ensure certain money is paid.
- Guarantee period - You can select a guarantee period of up to 10 years (5 for protected rights). This will mean that should you die within the selected period the income will continue to be paid until that time expires.
- Joint life option - You can select a certain proportion to continue to be paid to your spouse or other dependant upon your death.
- Value protection If you die before the age of 75 and the total gross income paid does not exceed the amount of the fund used to purchase the annuity, the balance will be paid to your estate. The value protection funds repaid to your estate are subject to a 35% tax charge.
Selecting the options above will affect the income you receive from your annuity. The degree to which it is affected will depend on your circumstances. To view a comparison of the different options, you can visit our online annuity supermarket.
How long does it take to arrange an annuity?
The time taken to arrange an annuity largely depends on the existing pension provider and how quickly they can transfer your fund. We estimate a typical annuity takes between six to eight weeks to complete but it could take longer or less time than this.
Is my annuity rate guaranteed?
We do everything possible to ensure you get the same annuity rate as when you received your annuity illustration; however annuity companies do change their rates. Most quotes are guaranteed for 14 days. If the funds are not transferred from your pension provider to your annuity company during that guarantee time and the annuity rates have changed, then your annuity will also change. It is therefore important that you try to return the appropriate forms and applications to us as soon as possible after receiving them.
Is there a difference between annuity providers?
Apart from the differences in the annuity income each provider will offer, there are a number of other aspects you may want to consider (particularly if the difference in income between providers is minimal). Financial strength is an aspect that you may want to take into account considering your annuity may need to be paid for 30 years or more.
Do I have to purchase an annuity through my existing pension provider?
No. You will often find that you can obtain a higher retirement income by taking the 'open market option' and purchasing your annuity through an alternative provider. If you've already received a quotation from your existing pension provider, then you can request a free comparison of your annuity options.
Can I get a better rate if I'm a smoker?
If you smoke cigarettes regularly and have done so for the past 10 years make sure you declare this when completing a quote as it may mean you qualify for an improved rate.
Can I get a better rate if I suffer from an illness?
Some illnesses or medical conditions mean you can qualify for an enhanced annuity rate. Find out more.
What is a purchased life annuity?
A purchased life annuity is an annuity purchased with your own money, as opposed to a pension fund you have built up.
Do I have to take tax-free cash?
No, although it is your chance to take some of your pension tax free. If you choose not to take the tax free cash all your pension fund will be used to provide an income. This will enable you to obtain a higher income, but this will be subject to income tax in the usual manner. Tax-free cash cannot be taken at a later date.
How safe is my annuity?
Annuities are generally provided by insurance companies and offer a secure income paid for the remainder of the policyholder's life. The financial security of an insurance company is important as the annuity may need to be paid for a period of 30 years or more. In this context, Hargreaves Lansdown feels it is important for our clients to be aware of the financial mechanisms in place to protect annuity payments and you will receive details of these mechanisms when you receive an annuity quote from us.
How can I get financial advice?
We do have a team of Professional Independent Financial Advisers who are able to provide advice on a wide range of financial matters. Call 0117 317 1690.
What is a benefit crystallisation event (BCE)?
A benefit crystallisation event (BCE) occurs when you become entitled to receive a benefit from your total pension funds, for example, when you take benefits upon retirement. When this happens the total pension funds you take (or “crystallise”) will be measured against your remaining lifetime allowance and if this is exceeded a lifetime allowance charge will be imposed. You will need to provide details of all your pensions and income to allow the calculation to be made.
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