Harold’s choice

What was important to Harold was a regular income each month, similar to the Plan pension, but tailored to better suit his circumstances. Harold took financial advice and was recommended to transfer out of the Plan and buy an annuity from an insurance company.

Harold’s choice is just an example and does not suggest a particular option that you should choose yourself. Please look at all of the options available to you and consider seeking independent financial advice before making any decisions about your own benefits.

An image of Harold

Summary of this option

Here is a list of things that this option provides or doesn’t provide. Have a look through and see if what this option offers might suit your personal circumstances. For example, is the reassurance of a regular income for the rest of your life a priority or would you rather withdraw money as and when you need to?

Benefit Available with this option? Notes
Benefit: The reassurance of a regular income for life Available with this option?Yes Notes:

Choosing a regular income for life from an insurance company gives you the reassurance of a regular income paid, normally monthly, to you for as long as you live, a bit like your salary is now.

This is particularly useful if:

  • this is going to be your main source of income in retirement
  • you appreciate the security and predictability of a set, regular income
  • you cannot afford to, or don’t want to take risk
Benefit: Pension increases to protect against inflation Available with this option?Optional Notes: You can choose to buy an annuity that increases in value each year to protect you against increases in the cost of living (inflation), by this we mean as the cost of things like fuel, bread, milk etc. go up, so does your pension income. This comes at the cost of a reduction in how much money you get each month. You can read more below in the section 'Income for life annuity options'.
Benefit: A pension for my eligible dependant on my death Available with this option?Optional Notes: You can choose to buy a joint-life annuity or an annuity with a guaranteed period which will provide an income to your eligible dependant when you die, giving additional reassurance for you and your loved ones. This comes at the cost of a reduction in how much money you get each month. You can read more below in the section 'Income for life annuity options'.
Benefit: Something easy to manage Available with this option?Yes Notes: Yes, once you've bought your annuity, the income from it will be paid to you regularly, just like your salary is now.
Benefit: Money to use now Available with this option?Yes Notes: In exchange for a reduced regular income from your annuity, you can take up to 25% (one quarter) of your transfer value as, currently, a tax-free cash lump sum when you retire.
Benefit: Leaving an “inheritance” Available with this option?No Notes: No, but there are some options to provide an income for your loved ones on your death. You can read more below in the section 'Income for life annuity options'.
Benefit: The flexibility to change my income when I like / need Available with this option?No Notes: The amount you receive from your annuity is fixed. If you choose an increasing annuity, the yearly increases will be the only change to the amount you receive.
Benefit: The ability to invest my money myself Available with this option?No Notes: There is no option to manage any investments.
Benefit: Suitable if I expect to live a long time Available with this option?Yes Notes: Your annuity will be paid to you for as long as you live.

Income for life (annuity) options

What are your options if you buy a regular income for life (an annuity)?

Feature Option 1 Option 2 Comparison
FeaturePension increases Option 1An income which increases during retirement, either at a fixed rate or based on inflation.

This is known as an ‘increasing annuity’.		 Option 2An income which remains level throughout retirement.

This is known as a ‘level annuity’.		 Comparison
  • A level annuity will start at a higher initial amount than an increasing annuity but will not increase during retirement, so you need to be aware that inflation will erode the value of your income over time
  • An increasing annuity will start at a lower initial amount than a level annuity but will increase during retirement, providing some inflation protection.
FeatureEligible dependant pension Option 1An income which continues to be paid to your eligible dependant upon your death (at a reduced level).

This is known as an ‘joint life annuity’.		 Option 2An income which ceases on your death.

This is known as a ‘single life annuity’.		 ComparisonAn annuity which includes an income for your eligible dependant after your death will be lower than an annuity paid just to you, as there is a chance that it will be paid for longer.
FeatureGuarantee period Option 1An income which stops on your death (or the death of your eligible dependant).

This is known as an annuity with ‘no Guarantee period’.		 Option 2An income which is guaranteed to be paid for a minimum period.

This is known as an annuity with a ‘Guarantee period’.		 Comparison
  • An annuity which includes a Guarantee period will have a lower income than an annuity which stops on your death
  • However, if you die shortly after you start to receive your income, a Guarantee period will ensure your loved ones still get something back.
FeatureHealth / enhanced terms Option 1An income which does not take into account your health.

This is known as a ‘standard annuity’.		 Option 2An income which takes into account your health.

This is known as an ‘enhanced annuity’.		 Comparison
  • If you have a diagnosed medical condition, smoke or have a poor lifestyle, you may be eligible for enhanced terms.
  • An annuity with enhanced terms will typically have a higher income than a standard annuity as it is expected to be paid to you for less time.

Tax

Tax-free income

  • You can currently take up to 25% of your transfer value as a tax-free cash lump sum.

Income (subject to tax)

  • Your annual income will be taxed at your marginal rate of income tax for that year
  • As your annuity income is stable, you can expect to pay a similar level of tax each year (subject to any other income you have and any changes in tax rates).