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Managing Director
Feature: Annuities & You
As annuity experts we recognise the importance of making the most appropriate choices because you are locked into the rates offered at the time and you may be relying on this income for many years. Click here to browse our case studies to get a flavor of just how Francis Clark Financial Planning may assist with quality annuity advice...
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Short Term Annuity Advice
We recently helped Mr and Mrs K achieve their retirement goals through the use of a short-term annuity. When they approached us they explained that they were overwhelmed by the many different retirement options available and were unsure as to the most suitable option to fit in with their needs.
They didn’t want to make a once and for all decision and wave goodbye to their entire pension funds and be locked into a fixed income for the rest of their lifetime. Their main requirements were to keep their options open, top-up their existing levels of income and avoid any stock market risk.
The short-term annuity provided an ideal solution as demonstrated below:
Mr K is aged 56 and Mrs K aged 54. They are both in good health, and are employed.
Mr K is in part time employment, and he wishes to top up their income for the next few years drawing on his pension fund and gradually reducing the hours that they both work. Mr K has a pension fund into which he saved for many years and they have a mortgage remaining on their house of £65,000.
We helped Mr & Mrs K achieve their requirement for a gradual retirement by using a short-term annuity. First of all Mr K took the maximum tax-free lump sum from his pension fund of 25% of the fund value, which was used to pay off the mortgage. This removed this item of regular expenditure and provide some extra cash.
With the balance of the pension fund, Mr K decides to invest into a short-term annuity, paying a regular monthly income until his 65th birthday. In addition the short term annuity arrangement guaranteed a maturity amount at the end of the term. At this point, Mr and Mrs K will reassess their financial situation and income requirements, taking into account that David will then start to receive his state pension.
When Mr K purchased the short-term annuity he also included a spouse’s benefit of two thirds, so if he dies before age 65, Mrs K will receive an annual income from the arrangement for the balance of the term. The short-term annuity contract will also provide a guaranteed maturity amount to Mrs K at the end of the term which must be reinvested into another pension arrangement through a provider of her choice.
The short-term annuity provided a solution for Mr and Mrs K by enabling them to increase immediate income without committing their entire pension fund to an annuity for the rest of their lifetime.
We explained to Mr & Mrs K that whilst the short-term annuity seemed the ideal solution for them there are some factors which should be borne in mind before they decide to go ahead. The main issue being that if annuity rates reduce over the term in which they are purchasing the short term annuity then at the end of the term, income may be lower as a result of delaying the decision to purchase a lifetime annuity.
For more information on the flexibility offered by short term annuities, speak to one of our advisers today.
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The contents of this website should be regarded only as a guide and no action should be taken before obtaining detailed professional advice. No responsibility can be accepted for any action taken as a result of the information contained.