Posted on: 21st November 2019
When considering how to invest in annuities, you may come across a lot of terms that you may not be familiar with. As such, reading up on your options may be confusing, leaving you with perhaps more confusion than you started out with. To help make things easier, Haven is here to break down some annuity jargon you may come across…
Jargon: Escalation or escalating annuity
Knowing how to invest in annuities is understanding that the jargon can be confusing. Escalation is where your income payments increase each year by a specified percentage. Fixed escalation will allow you to specify a percentage of up to 8.5 per cent each year. Alternatively, you can have your income payments increase in line with inflation. This will be either the Retail Prices Index (RPI) or the Consumer Prices Index (CPI)
If you have a capital-protected annuity and you die before the annuity has made total payments that equate to your original Purchase Price, the annuity will continue to make up the shortfall.
Enhance annuity is a lifetime annuity type that is offered by some insurance companies and annuity providers. It may offer a higher annuity rate than a lifetime annuity, given that you meet specific criteria that can shorten your life expectancy. These include:
- Whether you smoke or did smoke
- If you are overweight
- If you have spent a good part of your life working in a dangerous environment
This option will ensure that the annuity will make payments for a specified number of years, even if you die. This guarantee period can be any number of years, unless the annuity was purchased before 6th April 2015. If bought then, the maximum period would be 10 years. If you die during this period, the income payments will continue until the end of the agreed time.
Impaired life annuity
Some insurance companies and annuity providers offer this service to those who suffer or have suffered from a medical condition that will shorten their life expectancy. To qualify, you must complete a questionnaire on your medical history and the provider may ask for more information from your doctor and/or attend a medical examination.
If you choose a payment frequency of monthly, for example, in arrears, you will receive an income payment each month. However, the first payment will not be made until the end of the first month.
Joint life or joint life last survivor annuity or
Also known as JLLS, this is an annuity that is created to pay a continuing income to a designated dependant after your death. You can choose how much income they will receive as a percentage of yours.
The most common type of pension annuity, this provides an income stream for the rest of your life or the rest of the lives of the annuitants for a joint life last survivor annuity. The rate of this annuity is the amount of income that you will receive for each £ of your pension fund.
This annuity type can be offered by some insurance companies or annuity providers where the rate will be calculated based on where you live. The logic is that different areas of the country have different life expectancies.
This is an annuity that runs for a fixed period or if you die before then.
Bust the jargon and better understand your annuities with
Even when we break down these terms, you may still find yourself struggling to make sense of your options. If so, we highly recommend you seek independent financial advice. This is where Haven IFA comes in. If you would like to learn more about how we can help you plan for an enjoyable and better understand your options, get in touch.