Fixed Annuities
We all want to see our money work hard for us in later life, and when it comes to choosing an investment product there is no shortage of choice. Pension schemes are an obvious investment vehicle while we are still working, but when we retire what then? Annuities are just one of several financial products available to those at retirement age. Offered by life companies they provide annuities holders with a guaranteed income for the remainder of their life in exchange for a fixed sum - normally a pension.
Currently, annuities - or at least 75% of an annuity - must be purchased before the age of 75. However, as part of the government's pension reforms that are being implemented in April 2006, pension holders will no longer have to opt to buy into annuities before their 75th birthday. This change in policy will open the annuities market up to over-75s for the first time since the concept of annuities was first introduced to the UK.
Fixed or Variable?
There are several different types of annuities available from life insurance companies. The two main types that buyers differentiate between are fixed annuities and variable annuities. Fixed annuities are the most popular type of annuities product amongst today's consumers. Fixed annuities account for more than 80% of annuities purchases, being preferred over variable annuities because they offer a fixed income that is guaranteed for the term of the policy until the policyholder's death. Variable annuities on the other hand mean that monthly payments for the remainder of the policyholder's life may vary depending upon market circumstances.
The benefits of fixed annuities
Fixed annuities offer consumers a degree of security. This is because no matter what happens they are assured of a fixed monthly payment from the life company for the rest of their life. They can rely on this fixed sum to reach their bank account month after month without having to ever worry about the amount paid in going up or down as it would on a variable annuities scheme.
With a fixed annuity scheme policyholders in some instances can elect to receive a percentage of the investment as a fixed lump sum, with fixed monthly payments to then follow. This is a great way to liquidate a pension fund in order to get an immediate payback on all those years of making pension contributions, whilst putting yourself in a position to receive fixed monthly payments guaranteed for the rest of your days.