subject: Annuities: The Simple Facts [print this page] If you are facing retirement you may well be worried about how you will look after yourself financially after you have stopped working. It is a difficult time and there is a lot of pressure to make the right decision because whatever you decide is irreversible and it will determine your income for the rest of your life.
In short, an annuity is a guaranteed life income for a lump sum that you invest after you retire.
There are many different types of annuity and it is important to use the open market option to see what other companies can offer you, so that you can collect the best annuity rates out there. There are two main types of annuity; Compulsory purchase and Purchased life.
Compulsory purchase annuities mean that they are purchased with an amount of money which is taken from your employer's pension scheme. You are entitled to take some of this money out at this time, and then the rest can be used to purchase an annuity.
Alternatively a purchased life annuity can begin immediately and will provide a regular, fixed income for the rest of your life.
Enhanced annuity rates are specialist annuities catered to your specific situation. For example, if you are a smoker or a heavy drinker, have had medical conditions such as heart disease or cancers, or even have minor issues such as asthma. Diabetes can also make you eligible for an enhanced annuity. This is because you life expectancy is cut if you have one of these conditions, and therefore the provider expects to pay out less for you in the long run.
The company will use an annuity calculator to work out what you could be offered based on your life expectancy. You are more likely to be offered a higher rate than an average healthy person.
