Personal pension annuity rates

What Investment, Oct, 2002

An annuity is a financial product that converts capital into income. You can buy one with your own money and you can buy one with accrued pension funds. Currently, for money purchase pension funds, you must buy an annuity by the time you reach age 75. Most people buy their pension annuity sooner than this, to provide income when they retire.

Annuity types

Standard annuities provide a risk-free income, guaranteeing to pay a set level of income throughout your lifetime, no matter how long that may be. Investment-linked annuities provide growth potential and may out-perform standard annuities, but income from them can go down as well as up.

With most annuities, you choose at outset how you want to be paid and what optional benefits you wish to include. For example, you choose how frequently you want to receive income and whether to provide a continuing income to your partner on your own death.

Rates

The rates of income available vary due to the options you select, the date of purchase and your own circumstances, e.g. higher rates of income are available to smokers. Crucially, the rates also vary between the different providers. Even for exactly the same annuity, the difference in income between the best and worst can be 25 per cent--or even higher for some types of annuities.

Once you have bought an annuity, you cannot cancel it later or change the provider. You have one chance to secure the best possible income for the rest of your life. You owe it to yourself to get it right, so check out the table opposite for examples of the latest annuity rates.

Reading the table

* Figures assume an annuity purchase price of 100,000 [pounds sterling]. The income levels shown are the gross annual incomes.

* All the data is based on payments being made monthly in arrears and with a minimum payment period of five years.

* The rates available from Impaired Life Annuities depend on an individual assessment of life expectancy, for which, medical evidence is required. The rates above are based on a person who has had a triple heart bypass operation in the last year.

* A company appearing top for one set of benefits or age may be poor for a different set of benefits (for example, an index-linked annuity) or a different age; it is therefore imperative to shop around for an annuity based on your own circumstances.