Definitions and explanations of terms commonly associated with UK pension annuities and other retirement options.
Annuity Payments – the monthly payment made to the person who has purchased the annuity. The size of this payment will depend on a number of factors including the type of agreement, size of the pension fund, age, gender and health.
Enhanced Life Annuity – a special type of agreement that gives the policy holder a higher annuity income due to medical or lifestyle reasons that shorten their life expectancy. Higher payments are made on account that they are likely to be paid for a shorter period of time.
Guarantee Period – this sets the minimum period of time in which the annuity payments will be made. Payments will continue to be made even in the event of the death of the policy holder.
Income Drawdown – an annuity alternative in which retirement savings remain invested and an income is taken from this. This type of policy is only valid until the age of 75.
Pension Annuities – purchased when a person reaches retirement age the annuity converts the pension fund into a regular income. There are various different types of pension annuities available in the UK.
Pension Fund – the total value of a person’s pension plan including employer contributions, tax relief and rebates.
Phased Retirement – a type of agreement that converts the individual’s pension fund into an income over a number of years. This phased annuity can sometimes provide for the possibility of a higher future income.
Open Market Option – enables people to purchase annuities from any annuity provider and not just ones offered by their own pension holder. The open market option means that people are entitled to shop around for the best rates and policy most favourable to their circumstances.
With Profit Annuity – in this type of agreement the retirement income is linked to an annual bonus rate announced by the annuity provider. The size of the bonus will depend on the performance of the with-profit fund.
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