An annuity is an exchange between a lump-sum payment from a pension fund and a regular income set for life when you retire.

There are different types of annuity and the amount you receive depends on the terms of the annuity you select.

Insurance companies take in to consideration your age, gender and the size of your pension fund or savings; some may even consider the state of your health. However, the European Union “gender ruling” now means sex will not be taken in to consideration as payouts will be equalised between men and women in 2012.

Can they be changed or amended?

Conventional annuities cannot be changed, transferred or transformed into cash. Making it very important to find the best option to suit you if and when the time comes to convert your pension savings into an income.

Newer annuities are slightly more flexible. One option is to buy a ‘fixed term’ annuity, which is fixed for five years. An investment-linked product does also provide the possibility to change your attitude to risk.

Are they right for me?

This depends on your circumstances. Annuities do offer total security for as long as you live and considering we are all living longer, it does mean annuities should be a major consideration. It may be worth exploring a combination of annuity forms:

* Level annuities will pay a fixed income from the outset.

* An alternative is to buy an annuity that provides payments that rise in line with the RPI, thus maintaining the spending power of your income. But these can offer reduced rates.

* Another alternative is investment-linked annuities, which track the stock market.

Do I have to accept my pension company’s offer?

Certainly not.  The amount of income you will receive could vary greatly between insurance companies, so it is vital you conduct thorough research before making a commitment – shop around and choose the annuity that best suits your needs.

Do I have to buy one?

New rules now allow some savers to disregard annuities altogether. Instead they are able to go into ‘drawdown’. The new rules are complex and deserve a whole manual of their own, so please do speak with us directly for an in-depth analysis.

Pensioners will need to show they’ve secured a minimum annual income before they can do whatever they like with their pot. Otherwise they are only allowed to withdraw amounts each year equal to what an annuity would pay.

How could my health affect my annuity income?

You may qualify for an ‘enhanced’ annuity, which usually pays out at a much better rate. This is because your life expectancy is lower than that of a healthy pensioner of the same age.

Anything else I need to know?

It is worth investigating certain pension policies, which usually have special guarantees – this usually means they will pay a much higher rate than the norm. Guaranteed annuity rates (GARs) could mean an income much higher than policies without a GAR. Therefore it’s worth examining your options in detail.

A pension is a long-term investment. The value of your investment can fall as well as rise and you may get back less than the amount you have invested. Levels, bases and reliefs of taxation are subject to change and their value depends on the individual circumstances of the investor. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

That was seen as something of a flaw in the protection armoury, which led to the creation of a new type of protection called critical illness cover. This is a relatively new kid on the block – the first plans were written as recently as 1983 – and it’s vital. Indeed, it reflects the changing pattern of our lives today.

Critical illness cover pays out following the diagnosis of a serious illness, and the money can be used for whatever you want. You might want to pay for expensive or trial treatment not available on the NHS. You might need to supplement your income if you’re unable to work, or make changes in your home. You might even want to use it for recuperative holidays.

But just how vital is it? While we’ve tamed or even eradicated many diseases such as polio, smallpox and TB that blighted earlier generations, a number of serious illnesses still remain. Of these, cancer is the most pernicious. According to BUPA Individual Protection, four out of 10 men will contract some form of cancer during their lives. For women, this figure rises to seven out of 10. Not good odds, you might feel.

Protecting against such eventualities is where critical illness cover comes into its own. And of course such plans cover more than just cancer. While earlier plans typically covered seven or so major critical illness conditions, modern ones may cover around 30, including heart attacks, strokes, Parkinson’s disease and MS.

So, how much protection does such a plan provide in terms of hard cash? Obviously this depends on the individual’s circumstances, the premiums paid and the type of plan selected. But to go back to BUPA Individual Protection, their average payout per claim is around £79,000; and their highest to date is £750,000.

At Welbeck [http://www.welbeckgroup.co.uk/our-services/consulting], we’re firm believers in the usefulness of critical illness plans. As financial planning specialists and wealth management consultants, we believe that they can provide far more comprehensive protection if used in conjunction with traditional life assurance. We can guide you through the complex market of critical illness plans, providers and premium rates to find the plan that best suits your needs.

If you’d like to find out more, talk to us today.

Welbeck advisers all share one goal: to help you make more of your wealth.

How does it work?

Our work begins with meeting you in person. From the moment you meet us, your Welbeck Group adviser will consider your situation and discuss your needs. However, they will do more than learn about your needs today. They will ask about your aspirations for the future. Through these insights, they will investigate the options and return with a choice of solutions designed to help you achieve your goals.

When is the best time to start?

There’s no time like the present. After all, it’s better to prepare for an event now than regret doing nothing later. When safeguarding yourself against risks and saving for the future, it pays to act straightaway. Experience tells us that financial solutions are more successful over the mid to long-term. So it’s never too late to start.

How will I know you’re taking care of me?

Everything we do is about investing our time in you. You’ll enjoy the support of financial specialists committed to delivering solutions especially for you. Our advisers also stay up-to-date with the latest developments. And they will always inform you of any changes and opportunities that may improve your finances.

What do we offer expert advice in?

A number of core financial areas that apply to the individual such as, Estate Planning, Income Protection, School Fees Planning, Wills, Pensions, Regular Savings, Investments, Inheritance Tax Planning and ISA’s

Lets look into the following scenario as an example:

A man of 65 began to suffer a range of medical problems after purchasing a ten-year fixed-term annuity with his £50,000 pension which provided him with an income of £3,041 per year. Since purchasing the annuity, he has undergone bypass surgery, acquired angina and began taking a medical prescription regularly.

Usually, his decrease in life expectancy would not have been considered – yet with this possibly new flexibility feature, his income could be reassessed, resulting in a potential increase to his yearly income. It is also believed the more serious the health decline, the larger the increase in yearly income.

You should always seek advice or conduct thorough research before making a decision. The devil is often in the detail and the costs are likely to vary to entail this level of flexibility. You must also remember that by switching to this ‘enhanced rate” annuity could mean foregoing the lump-sum payment you may have received at the end of your original fixed-term annuity, so remember that you could end up with less money overall. You should also be aware that the value of the fund you receive would be the value of the underlying assets of the bond portfolio. If interest rates were to rise, the value would decrease, although this could be offset by an annuity rate rise. The important fact to note is that this is an option; you can continue until the end of the term if you would like. This feature may also only be available to those selecting “plan protection” on their annuities, so do discuss this with us. This enhanced rate annuity is believed to become a standard feature within the fixed-term annuity, although is it unlikely to apply to conventional lifetime annuities, as they are priced differently.

Failing to make adequate provisions for unexpected events – whether health-wise or job-wise – could prove disastrous.  As we approach a new year, now could be a good time to review your current level of protection and make sure they suit your individual requirements in order to sufficiently protect you against the unexpected. This is when we can help; we can provide you with face-to-face, tailor made advice, to suit you and your situation.

Both critical illness and life insurance policies can be crucial in helping people and their families during some of the most difficult periods in their lives and can play a key part in the financial support needed to perhaps pay off a mortgage, as well as provide dependents with some financial security in the event of a death. This re-iterates just how important both critical illness and life insurance cover can be. Here we guide you through the basics of these two types of protection:

Critical illness cover:

Critical illness plans, or “dread disease” plans as they are sometimes known, pay out the specified benefit upon diagnosis of a critical illness. Due to the depressing nature of critical illness, people are often reticent to look at these plans.

Most plans cover at least six core diseases or conditions:

• Cancer
• Heart attack
• Stroke
• Coronary artery bypass surgery
• Kidney failure
• Major organ transplant

Many critical illness plans cover far more than the above six common diseases or conditions. Plans can encompass other illnesses and conditions, such as rheumatoid arthritis and multiple sclerosis. We can provide you with bespoke financial advice based on your particular needs and find an appropriate plan to suit your requirements.

The fact that many of these conditions are now treatable is also worth consideration. If, for example, you have a minor heart attack and the insurance company pays out the benefit, you could perhaps return to work and continue with a normal life within a few months. If however, you have a major stroke, a critical illness plan could prove to be the best financial planning decision you ever made; you may no longer be able to work and you may need to pay for nursing care or for modifications to your home and car.

Be aware that if you die immediately after being diagnosed as having a critical illness, the plan may not pay out. You need to survive the diagnosis for a stated period.

Life insurance:

Nobody likes to consider the consequences and resulting implications to their loved ones should they die, however if you have a family or own a house, life insurance should be a vital consideration to ensure your loved ones are taken care of should this eventuality arise.

Usually the younger you purchase life insurance, the cheaper the premium – should you purchase a guaranteed policy, which typically remains the same premium throughout the term. When you purchase life insurance at a younger age, you are generally considered a lower risk, so payments are usually less. You could consider an indexed-linked policy, which keeps track of inflation – otherwise the true value of your payout could be reduced over time.

If you lead a healthy lifestyle, usually life insurance premiums are lower as again, you are considered less of a risk to insurance companies. It is thought smoking can have a dramatic affect on your overall premium, therefore by quitting; you could significantly reduce your payments.

Should you and your partner have children together, it may be worth considering singular life insurance policies rather than a joint policy. Although the cost may be slightly higher, it means each person is insured and you would therefore receive two payouts, rather than just the one payout from a joint policy upon the death of the first person. This can offer more security to your dependents, should both of you die within a close proximity.

If you believe your estate may be subject to Inheritance Tax upon your death, you should perhaps consider investing your life insurance into a trust. This ensures that should you die, the money is not taken by the taxman but is paid out to your chosen beneficiary or beneficiaries.

Most importantly, when considering a life insurance policy, it is vital you tell the truth. An insurer can conduct checks and should they discover you have stated facts deemed to be untrue; for instance, claiming to be a non-smoker when in fact you are, they may decide not to pay out.

Whatever the level of protection needed, or whether it’s just to have a review of your current situation. Welbeck Group will always place you and your needs first and recommend the best possible protection policies.

http://www.welbeckgroupconsulting.co.uk/protection/

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