‘Annuities’, ‘pensions’, ‘fixed term annuity’, ‘open market’…so many terms, so little time – and it all appears to be as clear as mud. In order to sift through this mud, we can use a somewhat tentative but highly entertaining analogy to assign each of the main annuity products its very own Golden Girl, based on their comparable features and suitability.
The Dorothy Zbornak
The Guaranteed Life Annuity
The Dorothy is the sensible, safe and grounded option; feet firmly on the floor, she is the no frills annuity that does what it says on the tin. The most conventional of annuities, the Guaranteed Life Annuity is a regular income for life which can also be tailored to a certain extent. It is best for those with stable personal circumstances who are looking for a low risk product that provides financial security without ongoing fuss or uncertainty.
The Rose Nylund
The Impaired Life Annuity
Fair and simple, The Rose is for those who have health or lifestyle issues that significantly affect their risk assessment on applying for the annuity. People with conditions that are deemed to lower life expectancy (think about Rose’s long and complicated medical history, including a triple bypass and numerous scares) are able to benefit financially from the enhanced rates of an Impaired Life Annuity.
The Blanche Deveraux
The Investment or Unit Linked Annuity
This is the go-getter. No stranger to flirting with danger or taking risks, the Blanche is an annuity with the potential to provide a profitable income for life as it is calculated in accordance with the stocks and shares your pension is invested in. Due to the nature of investment or unit linked annuities, payments will fluctuate but there will be a guaranteed minimum income as well as the option to convert to a conventional Guaranteed Life Annuity should it all get too much.
The Sophia Petrillo
The Purchased Life Annuity – with fully protected capital
The Sophia is best for those who are not as financially astute or responsible as they could be. It is a low risk guaranteed income which works in the same manner as the conventional annuity; the difference is that this annuity is purchased with a cash lump sum, rather than subsidised by the pension you’d usually entrust to your chosen company – and as there are no investment links, it is a safer option than some of the more interactive annuity products (see the Blanche). The bonus of having fully protected capital also makes the Sophia a good choice for parents concerned with their children’s future; you see, in the case of the gross income paid being less than the original investment, the remaining funds will be passed to heirs – which means Dorothy could be quids in!
So there you have it – the no nonsense guide to annuities. It’s always best to speak to an expert when considering the best option for you and your pension but at the very least, next time you discuss all things annuity, you can put a face to the name!
Which Golden Girl do you want seeing you through your Golden Years?