If you decide to buy an annuity, you will need to choose the type of annuity that’s right for you and shop around to find the best value for money. You can get access to a guided annuity service through HUB Financial Solutions (HUB) as a member of the Scheme. When you are closer to retirement, WTW will automatically send you ‘Your Pre Retirement Pack’ containing information about various annuity benefit options available to you. HSBC will only pay for you to use this service if you are actually taking your
retirement benefits from the Scheme. It is not available if you are just considering whether or not to retire.
Further information in relation to HUB is available from WTW at HSBCPension@willistowerswatson.com and on 01737 227575.
To help you to understand more annuities, take a look at some of the different annuity options available below:
An increasing annuity helps protect your income from inflation by providing an income which increases during retirement. It will start at a lower initial payment amount than a level annuity. You can choose either:
- An income that increases at a set rate each year, for example 3% or 5% or;
- An index linked annuity – this changes your income each year in line with inflation. Insurance companies often cap inflation increases and only allow your income to go up by a maximum percentage even if
inflation is higher.
A level annuity provides an income which stays the same throughout retirement. It may pay out more than an increasing annuity at the beginning, but its buying power could reduce over time if prices rise. It’s worth
thinking carefully about the impact of inflation in retirement. You may need to live on your retirement income for 20 years or more.
If you choose an annuity with a guaranteed period, an income would continue to be paid to your dependant or other beneficiary for a minimum term after you die.
An annuity with a guaranteed period pays an income which is guaranteed to be paid for a minimum period regardless of how long you live. A guarantee period is a form of protection that ensures that your income continues to pay out for a minimum term, even if you die within that term.
If you buy a ten-year guarantee for example, and if you die after seven years – payments will continue for another three years or a lump sum can be paid. If you die after the guarantee period you’ve selected, the income will stop – unless you’ve set up a joint life annuity.
If you choose an annuity with no guaranteed period, the income from this will stop when you die (or when you partner dies if you choose a joint life annuity). This will typically have a higher starting amount than an annuity which has a guaranteed period. If you die soon after taking out an annuity, you may not get back the amount you paid to the insurance company.
You’ll need to decide whether you want the annuity to continue to pay an income to your partner or another dependant after you die to determine whether to choose a joint life annuity or a single life annuity.
A joint life annuity is designed to provide an income to your spouse, or civil partner after you die. It can pay anything between 1% to 100% of the income that you were receiving immediately before your death. It will usually cost more to buy so it will usually be a lower staring amount than an annuity paid just to you, as it is expected to be paid for longer.
Some providers might not agree to set up a retirement income for a spouse or partner if they’re more than ten years younger than you.
A single life annuity pays an income which stops when you die. It usually pays a higher level of income than a joint life annuity.
You may be able to get a higher income if you have a reduced life expectancy.
A standard annuity provides an income which does not take into account your health.
An enhanced annuity provides an income which takes into account your health and lifestyle. If you are eligible, this type of annuity will typically have a higher starting amount than a standard annuity because it’s expected to be paid to you for less time. Providers assume you will not live as long as someone in full health.
Health problems that mean you could get a higher retirement income include:
- Heart attack
- Kidney failure
- Chronic asthma
- Multiple sclerosis
- High blood pressure
- High cholesterol
Some insurance companies also offer enhanced annuities to people who have worked in certain jobs. For example, those involving a lot of manual labour, or who live in certain areas of the country that have, for example, have lower life expectancies.
You’ll be asked medical questions before you’re offered an enhanced annuity. The insurance company might ask your doctor for more information or ask you to attend a medical examination.