Essentially a pension annuity contract is a contract between a pension provider and a beneficiary of a pension arrangement (scheme or plan). The pension provider promises to pay an agreed income to the beneficiary for the natural life of the individual. The individual’s pension arrangement will transfer the agreed value from the accumulated pension fund, to the provider in return for the pension annuity contract.
The pension annuity provider will calculate the pension income receivable based on a number of factors. The age and sex of the individual will be primary factors. Also, current and long term interest rates will impact the income that can be paid on the contract.
The pension annuity contract will provide security of knowing that you will receive a retirement income for life. As you a purchasing an income stream for life, there are no investment decisions to make.
There are a number of optional benefits available to individuals purchasing an annuity contract. You may wish to buy a guaranteed period pension. This ensures that if you die prematurely during the guaranteed period, that your estate will receive the remaining pension income payments up to the end of the guaranteed period.
You can choose to protect your pension income from inflation, byescalating the pension income at a fixed percentage or by the CPI (consumer price index) each year.
An additional feature is to purchase a dependants pension. This enables you to specify a percentage of your pension that will be paid to your spouse / dependant upon your death.
Naturally, the greater the number of options purchased on the annuity contract, the higher the price of the contract and the lower the pension income receivable. But these options will reduce the risk of the contract completely lapsing after premature death of the retiree.
Depending on your pre retirement pension arrangements and your individual circumstances, your post retirement arrangements may include an annuity contract and also an ARF.
See more >> ARF