Guaranteed Pension Annuity
questions & answers
These questions and answers will help you understand this annuity, and decide if it is suitable for your client.
If any of the pension funds being used for this purchase are subject to a pension sharing or earmarking order from a divorce, or a bankruptcy order, this could reduce what your client will be entitled to receive from their annuity. If so, we will advise your client once they have applied.
Your client’s investment
What is a Guaranteed Pension Annuity?
It is an insurance policy purchased with money from a pension fund.
It promises to pay an income for life. So even if your client lives to be 100 or more, their income will never run out.
Is there a minimum or maximum purchase price?
Normally the minimum is £10,000 and the maximum £100,000. But if the pension fund changes in value between the date of our quote and the date we receive the money, we can usually accept slightly under or over these amounts.
Can my client use more than one pension fund to buy an annuity?
Yes, they can normally combine up to three funds (provided all the funds are acceptable to us). The annuity will not be issued until all funds are received by us.
What happens when my client’s pension funds move to Hodge Lifetime?
If they are combining more than one fund to buy their annuity we hold the money in a deposit account in our name until all the funds are received (no interest is payable). When the final money arrives we confirm this in writing to both you and your client.
However, the transfer of funds to us can take some time to arrange. Depending on the existing pension fund provider it could be anything from a week to a month, or may be more. We progress this regularly with the provider, so you don’t need to do anything.
What happens about taking tax free cash?
Any pension commencement lump sum taken must be paid to your client by their existing pension fund provider, before they transfer the annuity purchase funds to us.
Annuity rates and the open market option
The open market option is a legal right to choose an annuity and find the best deal for your client and their pension funds.
This is important because annuity rates can vary considerably between companies. Even the same company can offer different rates based on the combination of annuity options chosen. Who’s top for one quote might not be top for another.
How long do you guarantee your quotes for?
We guarantee our quotes until our next annuity rate change and for 14 days from that rate change.
If we receive an application during this quote guarantee period, we automatically extend the quote guarantee for another 30 days from the date we receive the application.
If we receive all the application paperwork and purchase money within the 30 day application period, we will set up the annuity based on the guaranteed quote.
Otherwise, we will issue you with a final quote for you to accept on behalf of your client before we set up the annuity using our new annuity rate and let your client know when the first income will be paid.
If the new rate is lower, they will get a lower income. But, if our rates go up at any stage during the application process they will automatically receive a higher income.
Can I rely on the quotes you give me?
Yes, the only time we don’t stand by the figures in a quote are when:
- The quote passes its expiry date, or
- if we find out it was based on inaccurate or incomplete information, in which case the quote will be invalid. If an annuity is purchased on the basis of an invalid quote we may adjust the annuity income or even cancel the annuity and unwind the whole transaction.
Your client’s annuity income
How much income will my client get from an annuity?
Our quote shows how much we can pay your client, based on our current annuity rates – provided we receive all the application details and purchase money before the expiry date shown on the quote.
The amount of income depends on several things:
- Your client’s age and sex (and their dependant’s age and sex if they buy a dependant’s annuity)
- The purchase price
- The annuity options chosen
- Our underlying annuity rate which in turn reflects current long term interest rates.
We may change our annuity rates for new quotes at any time.
Will my client’s income change in the future?
No. The amount of income they get stays the same for life (it doesn’t go up or down). That’s guaranteed.
But, because it doesn’t increase, bear in mind that they could be worse off in the future if income tax or inflation go up.
Is annuity income taxed?
Yes, the income is taxed like earned income using the “Pay As You Earn” (PAYE) system, and it must be declared on your client’s yearly tax return.
We normally deduct tax before we pay your client, based on their tax code at the time, and pass the tax on to HM Revenue and Customs. When their annuity starts it may be taxed on emergency coding until we receive all their tax details.
If income taxes or personal tax rate changes, so could the amount of income received.
How do you pay my client’s income?
We pay the money directly into their nominated UK bank account. We can’t make payments to non-UK banks and the account must be in the client’s name (or joint-name).
Is the Lifetime Allowance affected?
Whether or not your client is affected will depend on the total value of all their pension funds added together.
The Lifetime Allowance is the Government’s way of limiting the tax-efficient benefits from private and company pensions. It is a tax charge designed to affect only those with extremely large pension funds, and should not affect the majority of people.
Do you take my client’s health into account when they apply?
No we don’t. If they smoke or have any health problems (or their dependant does) they might be eligible for an enhanced annuity which could pay them a higher income.
What happens to the annuity income upon death?
This depends on your client’s annuity options. If they have have chosen a Guaranteed Payment Period and/or a dependant’s annuity there could be further payments after they die. (See ‘Your client’s annuity options’ below).
If your client hasn’t chosen these options their income will stop when they die.
Your client’s annuity options
Your client chooses the options they need when they apply for their annuity. Once their annuity has been set up they cannot be changed.
Their choice affects how much income the annuity pays.
How often can payments be made?
Your client can choose from four options:
- Monthly
- Quarterly
- Half yearly
- Yearly
They can also choose whether they want their income to start straight away (known as ‘in advance’) or be paid at the end of each period (‘in arrears’).
If they choose to be paid in arrears, and die in between payments, there will be a final proportionate payment based on the number of days between death and the previous payment. If they have chosen a dependant annuity, a proportionate payment will be made only on final death.
What if my client dies early on?
An annuity promises to pay your client an income for life – however long or short a time that may be.
With our Guaranteed Payment Period, your client can protect their income if they die within either the first 5 or 10 years of buying their annuity.
For example, if they chose a 10 year guarantee period and died after 6 years and 3 months, we would continue to pay their annuity income in full for the remainder of the guarantee period; in this example for another 3 years and 9 months. The money would be paid to either the client’s:
- Named dependants as a regular income – if they have a dependants annuity, or
- to their estate as an equivalent lump sum if they die before age 75. The lump sum is subject to deduction of tax which is currently at the rate of 35%.
If death occurs after age 75, then any payments due will be paid as a regular income. If your client does not choose this guarantee their income will stop when they die, even if this happens in the early years.
Can my client’s partner have an income after they die?
Yes, they can have an annuity that names a specific financial dependant.
This can be their husband, wife, civil partner or life partner (living together as if married or civil partners and financially dependent on them or in a mutually dependant financial relationship with them). We cannot accept other dependants such as friends, carers, relatives or children.
If your client dies first, we’ll pay their named dependant an income for the rest of their life. Your client chooses how much – either half, two-thirds or all of their income.
If a minimum guaranteed payment period has been chosen and the client dies during that time, their dependant’s income will start when payments under the guarantee stop.
What if the dependant dies first?
Your client’s income will continue as normal, but no dependant’s income will be payable. Also, they won’t be able to revert to a single life annuity and benefit from a higher income themselves.
What if my client gets divorced, their civil partnership or life partnership ends?
Their former partner will not be entitled to receive a dependant’s income from this annuity after the client’s death. Nor can they transfer the dependant’s income to any new partner or receive a refund.
Can an annuity be cancelled?
If your client applies and then changes their mind about going ahead, they will have 30 days from when they receive our terms and conditions and sign their application to cancel. If they cancel in the first 14 days we will not have received any proceeds from the original pension provider.
Are there any risks if cancelled after 14 days?
That depends on whether or not we have received your client’s pension fund at the time they cancel.
Refund of purchase money – within 30 days of cancelling their annuity we will pay back to their original pension provider any monies they have paid to us.
If the original pension provider refuses to accept the returning pension fund the client can either:
- Choose a different annuity with us, or
- transfer to a different annuity provider.
Refund of pension commencement lump sum – your client may be required to repay any tax free cash to their original pension provider.
Refund of income – if we have already paid your client some income, they must repay it in full, immediately. We will not pay any money back to the original pension provider until the client has repaid us.
If your client wishes to cancel after the cancellation period has expired and we have already set up their annuity it will be too late. They must keep the policy for life. They can’t unwind the transaction, transfer to another provider, cash in the policy or alter it in any way.
How does my client cancel?
Your client may cancel their application by completing the cancellation form provided with their quote or by writing to us at Hodge Lifetime, Annuity Administration Centre, Sutherland House, Russell Way, Crawley, West Sussex RH10 1UH or email annuityadmin@hodgelifetime.com
Next: Guaranteed Pension Annuity - further information
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