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

Understanding Pension Wise

As per the new Pension Freedom reforms that were introduced in April 2015, savers now have more flexibility in the way they access the funds in their pension pot.

There are multiple options and choices when it comes to maximizing tax benefits.

Are you aware of all the choices you have?

Do you know how the new pension reforms can benefit you?

If you don’t, then now is the right time to head straight to Pension Wise.

What is Pension Wise? 

On the 21st of July 2014, the Chancellor of the Exchequer, George Osborne announced that millions of UK citizens would now have the right to impartial guidance on how to utilize their pension pots after the new Pension freedom laws come into effect.

Following this announcement, the Pension Wise service was launched in Feb 2015.

Pension Wise is a completely free service backed by the government and manned by independent financial experts who will guide retirees on making the right decisions regarding their pension funds.

There are multiple ways in which Pension Wise can assist you.

  • The Pension Wise Website is a comprehensive source of information regarding retirement finances. You can get detailed information about pensions, your choices and the tax implications of making those choices.
  • You can schedule a face-to-face appointment to further discuss these choices ensuring that you are well informed and aware of the decisions you make.
  • You can call them on 0300 123 1047 or use their web chat function to speak to a Financial Expert who will provide consultation on your doubts regarding pensions.

Benefits of using Pension Wise

If you are not fully aware of how the new Pension Freedom reforms would affect you, then it is better to seek impartial advice.

And there is no better place to get impartial advice than a government-backed agency.

It is free and it can help you in more ways than just provide information.

Disputes: Pension Wise can act as a mediator if you are involved in a dispute with a pension provider (Public or private) and have already tried to resolve the matter by writing to them. All you have to do is furbish copies of the initial correspondence you had with the scheme. The in-house pension specialists will then guide you through the best possible course of action.

Telephonic Guidance: As long as you are above the age of 50 and have a defined contribution pension plan, you can call Pension Wise on 0300 330 1001 between 8 am to 10 pm every day to schedule an appointment or a telephonic guidance session. You can also walk into the nearest Local Citizens Advice Bureau to schedule an appointment.

Impartial Advice: Unlike pension scheme managers who may try to sneak in a sales pitch between advice, the pension experts at Pension Wise will give you unbiased advice without recommending any service or product.

Scams: Since many people are unaware of how the new pension freedom norms would affect them, fraudsters are having a ball. There are many types of pension scams which target retirees. If you have received an offer for a free pension review or an overseas investment option in an ‘exotic’ location, then it may well be a scam. You can speak to the financial experts at Pension Wise before deciding on any further course of action. You may also check our article on how to Identify a Pension Scammer.

Prepare for your consultation

If you have booked a phone guidance session or have scheduled a face-to-face appointment with Pension Wise, then you must be prepared with some information for the appointment.

  1. Get the latest pension statement from your provider to know the value of your pension pot(s).
  2. Analyze your current financial situation and keep the details handy. You may need to discuss your current salary, your cost of living during retirement and whether you have additional savings or debts.
  3. Decide on how you wish to access the Pension Pot. Do you prefer a fixed monthly income or are you better off accessing small sums of money from the pot?
  4. Do you have any health conditions that may affect your life expectancy?

Remember, good advice is only a phone call away. Make use of it.

How to Select a Financial Advisor

There is such an abundance of information about pensions and retirement online that retirees can make the mistake of trying to cut corners and making crucial financial decisions themselves.

If one thinks closely about the implications that such a decision may have in the next few years, the thought can be scary.

One small mistake while buying an annuity or while choosing an investment fund, can virtually change the way your life unfolds in the twilight years.

SEE ALSO: What is an Annuity?

All those years of planning, saving, and preparation can be undone in minutes.

That’s why most financial experts and even the government encourage you to seek independent financial advice before you make decisions about your pension.

It is not very expensive, and the information and advice you receive can be very well worth it. In fact, you should consider it as an investment in its own right.

How to find financial advisors

One of the easiest ways to find a financial advisor is to ask for recommendations from your colleagues or friends who may have hired their services.

However, the catch is that it may not always be possible to gauge the quality of the advice provided that a few years pass.

There are other public resources which can be a valuable source of impartial information about Independent Financial advisers who are regulated by the Financial Conduct Authority (FCA). Here are some of them.

  1. The Unbiased Web Directory (www.unbiased.co.uk) lets you search for a financial advisor close to you by entering your postcode
  2. Vouched (VouchedFor.co.uk) is a review based website that provides ratings and reviews written by genuine clients of various financial advisors. It is a good resource to analyze the services of financial advisors.
  3. The FCA (The Financial Conduct Authority) register allows you to check and know if a financial adviser you selected is an authorized one

What should you look for

Financial advisors come in all shapes and sizes and have varied areas of expertise.

Since you are looking for advice regarding retirement income, pensions, and annuities, you should look for an adviser who is skilled and qualified in those areas.

  • Check if they are qualified. Although all Independent Financial Advisers are required to be qualified to a certain minimum level (Ofqual accredited level 4 qualification), any additional qualifications will be a plus.
  • Check their expertise. A financial adviser who has been around for the last few years will certainly be a better choice than someone who has recently started their practice.
  • Ask for references to see if their clientele has mostly been people who had similar requirements as yours. A diverse clientele does not necessarily mean that they cannot provide you with good advice.
  • Check the fees beforehand. As per the RDR – Retail Distribution Review dated 31st Dec 2012, you can choose to pay fees upfront for the services, or you can choose to pay them a commission from the amount you invest in a product that they recommend. But do not slump for the first quote you receive. Get quotes from multiple financial advisors.
  • Ask if they are an independent adviser who will be able to provide you with impartial advice and offer a broad range of investment options. If the adviser only offers a limited number of investment options, then they may be a ‘restricted’ advisor.
  • Ask if you will be provided on-going advice if necessary and what it will cost you.
  • Look for advisers who agree to meet you face-to-face, free of charge. Usually, a direct meeting is a better way to understand if you are dealing with the right person.

The Preparation

If you have selected a financial adviser, then the next step is to ensure that you prepare well for the meeting. They will first try to get a clear picture of your investments and if applicable, that of your partner or spouse.

So prepare a list of all relevant details like your assets, liabilities, existing policies, private pension plans, investments, power of attorneys, wills, employment pension schemes, payslips, national insurance number and any other information which you think may be relevant.

You may also look at our Complete Pensions FAQ.