Guide to Annuities
UK Pensions

Annuity FAQ's

Here are some frequently asked questions and their answers which may also assist:

Annuities FAQWhat is a Guaranteed Annuity Rate (GAR)?

  • A Guaranteed Annuity Rate (GAR) provides a fixed rate for converting a pension fund into an income at retirement.
  • It is written into the policy conditions of your pension and does not alter with changing investment conditions.
  • The rates are usually more generous than those available on the open market.
  • They may, however, have conditions that limit the way your annuity is paid, e.g. often there is no provision for annual pension increases or for a pension payable to your spouse upon your death.

Annuities FAQWhat is a Retirement Annuity Contract (RAC)?

Retirement Annuity Contracts (RACs) are a type of pension plan that individuals could take out up until 1 July 1988, when the current form of Personal Pension Plan (PPP) was introduced in the UK. Retirement Annuity Contracts were available to those in employment where there was no access to an occupational scheme and to those in self-employment, provided they had earnings subject to UK taxation.

After 1 July 1988, no new Retirement Annuity Contracts could be taken out but those with existing contracts were able to continue to contribute to them. While the new personal pension plans were designed on similar lines to Retirement Annuity Contracts, there were some areas in which they differed. Retirement Annuity Contracts were allowed to retain some features that did not apply to Personal Pension Plans. From 6 April 2006, under new rules introduced by HM Revenue & Customs, Retirement Annuity Contracts were put on the same basis as Personal Pension Plans and almost all of their special features no longer apply.

Annuities FAQWhy would I need to include the option of a Guarantee Period in my pension annuity?

If an annuity is guaranteed for a specified period, it is guaranteed to be paid for that period, regardless of when you die. For example, if you bought an annuity policy today, with no guarantee period, and died shortly afterwards, the money you used to buy the annuity is gone, and your estate would receive nothing. But if a guarantee period is in place, your estate continues receiving the annuity pension payments for the remainder of the guaranteed period.

Annuities FAQIs 'Income Drawdown' the same as buying an annuity?

Income drawdown is an alternative option instead of buying a lifetime annuity when you reach retirement. Income drawdown is also known as an unsecured pension. Income drawdown is an arrangement that enables you to start drawing an income from your pension fund while the fund remains invested. It is usually something done with larger pension funds of around £100,000 or more, and for people who have other assets.

Annuities FAQHow are annuity rates calculated?

Annuity rates are calculated by actuaries (financial experts who use statistics to calculate insurance premiums). They use several factors such as:

  • mortality rates
  • interest rates
  • age
  • gender
  • health (in some cases)

Generally, the older a person is the higher their annuity rate because their life expectancy is shorter than a younger person. Men also get higher annuity rates than women of the same age because men statistically have a lower life expectancy.

PDF Guide to Annuities Download the Annuities PDF Guide here - see our other free PDF guides here

Guide Contents

What is an Annuity?
When might I need an annuity policy?
Types of Annuities
Pension annuities
Annuity income options
Enhanced and Lifestyle annuities
Impaired Life Annuities
Annuity Rates
Where can I go to get more help?

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