Your pension circumstances will be different to everyone else and you only have one go with it, so getting it right is important. This article will help you understand the technical terms your advisers will be using.
Study these simple explanations of what the marketplace has to offer and you will be up to speed when you really need to make your decision.
Also, please read through these notes before going to any internet site so your visit there will mean much more to you with your new found information.
There will also be an advantage to looking in a dictionary for the words pension and annuity.
Open Market Option
All personal pension products should now have the OMO. It is your right to move the whole fund to another insurance company which gives you a better price. This could produce a significant increase, which could be as much as 30%, but any kind of increase is good.
You could have the choice of a number of percentage prices for escalation most commonly 3% p. a. The effect of having escalation integrated is to start your pension in a lower amount, than if you had taken a level pension. After a period of time the particular escalating pension will rise to the amount of a level pension and then boost beyond the level pension. By obtaining quotations one can work out how many years it is before the cross-over happens. Another point to consider is how you view inflation in the future.
Is it better to have more in your pocket during the early years of retirement? The particular inference is that one does more expensive things in early retirement than in extremely late retirement. Only you can make this sort of decision, but it is an aspect that you may care to consider.
Single Life or Joint Life Annuity
If choosing joint, you will see the phrase ‘joint life and survivor’ which means that within the death of the first, the same amount of pension is paid to the survivor until the second death. Some combined life annuities, if set up this way, could have the survivor to receive exactly the same, one third, or one half, or 2 thirds of that enjoyed during the mutual lifetimes. The choice is yours.
Regularity of Payments
If left to their own devices, an insurance company will certainly talk about “monthly in arrears assured five years. ” This means that upon retirement day you will not see a payment until one month has been torn from the calendar, and payments are guaranteed five years and then for life afterwards.
An alternative could be, say, monthly beforehand, which of course means day one is usually payment day. The quotations may differ because the longer an insurance company keeps hold of your money, the longer the fund is invested plus they can afford to pay you just that much a lot more. The regularity of the payments might be monthly, quarterly, half yearly or yearly in advance or, in arrears.
You will have gathered that yearly within arrears means no income for the year, but the amount received more than twelve months will be greater than any of the additional examples. It is all down to actuarial calculations. Needless to say not many people consider yearly in arrears but it is usually technically possible.
Guaranteed Period of Payment
Quotations are based on what you want and to assist you to understand this it should be said that you can have “no guarantee”, “guaranteed five years” or even “guaranteed ten years”.
What this means is in case a person dies at the end of year one in a five year guarantee circumstance, the estate will receive a huge equivalent to the unpaid period.
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Exactly the same thinking applies to a ten year guarantee policy. The full phrase would be Guaranteed 5 Years and for Life Thereafter. If you are a Single Life and you also die at 5 years then one day, the guarantee period may have expired and the pension stops.