Guide to Annuity Jargon

If you find yourself at your wit’s end trying to figure out the meaning of certain ‘terms’ in your pension manager’s sales pitch, you are not alone.

A lot of retirees face the problem of having to deal with an abundance of technical jargon when they first speak to insurance experts.

Unless you work in an insurance company or are a qualified financial adviser or have read about these things, it is normal to be confused.

Here’s our guide that should help debunk these arcane terms about annuities.

  1. Annuitant: The annuitant is the person who purchases the annuity
  2. Escalating Annuity: A type of annuity in which your income increases by a set percentage every year which can be specified by you. The higher the percentage you select, the lower your monthly payout will be initially.
  3. Index-Linked Annuity: A type of annuity in which your income will rise in line with rising prices (inflation). Either the Retail Prices Index (RPI) or the Consumer Prices Index (CPI) is used as a reference.
  4. Compulsory Purchase Annuity: It was compulsory for every citizen to purchase an annuity before the age of 75. This rule was changed in April 2006. Hence, the term Compulsory Purchase Annuity is an obsolete one.
  5. Capital Protected Annuity: A type of annuity in which your entire pension pot will be returned to a nominated beneficiary in the event of your death before a set time period. The returned amount will be subject to 35% tax.
  6. Enhanced annuity: A type of annuity with higher rates offered to retirees who may have a shorter life expectancy due to certain medical conditions or lifestyle-related conditions. For example, people with cholesterol, cancer, those who smoke or those who have recently quit smoking may be eligible for it.
  7. Guaranteed Time Period: A specified time period (5 or 10 years) for which, your annuity payment will be paid even in the event of your death. You can choose whether you want the remaining payment to be paid as a lump sum or as a regular income.
  8. Investment Linked Annuity: A type of annuity in which one part of your pension pot will be used to provide you with a low minimum guaranteed payment. The remainder will be invested in funds and the further income provided will be variable.
  9. Joint Life Annuity: A type of annuity in which your dependent spouse, civil partner or children will continue to receive the annuity payment for the rest of their life or a set time period, in the event of your death.
  10. Single Life Annuity: An annuity in which you will be the only annuitant who will receive the annuity payments for life. The payments will stop upon your death. If you have selected a guarantee period, then the payment will continue till that period.
  11. Level/Fixed Annuity: An annuity where the income will remain fixed for your lifetime.
  12.  In advance: The type of payment frequency you select in advance. For example, if you select a payment frequency of quarterly in advance, you will receive your payments at the completion of three months.
  13. OMO (Open Market Option): An annuitant’s right to shop around to find the best annuity rate by seeking quotes from multiple annuity providers
  14. Payment Frequency: The frequency at which you receive your payments. Can be monthly, quarterly, half-yearly or yearly.
  15. Postcode Annuity: A specialized type of annuity which is offered on the basis of the area where you live. A postcode annuity is based on the thought that people living in poorer areas may have a shorter life expectancy and people living in a richer locality may have a longer life expectancy.
  16. Purchased Life Annuity: A type of annuity that is not purchased using the money in your pension pot. You can use your pension commencement lump sum or any other funds that you may have saved.

RELATED: Types of Annuities