Annuities are investment products that provide you with a life income after you retire. You buy them with your pension pot, the money you have been accumulating throughout your working life.
It is therefore a very important decision which determines how you will plan your retirement.
Fixed rate annuities are popular types of annuities because they offer stability and peace of mind that the rate will never change regardless of what interest rates are doing or how well the economy is.
This does not mean that the income received from a fixed rate annuity will never increase. Although the rate of interest will remain fixed, you can add what's known as an escalating option to the annuity.
This means that it will increase each year, usually by a set amount such as 3% or 5% for example.
The benefit of this option is to try to counteract the effects of inflation which will erode the value of the income over time if it does not increase.
Three features include:
1. All fixed annuity rates are guaranteed for the duration of the annuity. This might be a five year, ten year, twenty year, or lifetime agreement. You can choose what would be best for you and your money and you might even consider joint annuity deals with your partner – another popular option. This differs from variable rates that can go up and down with the bank of England or underlying investments. It is a less risky option and provides an income you can depend upon. It is considered a beneficial investment in your retirement.
2. Applying for a fixed rate annuity will usually always include a background check on the person as well as a credit check and medical examination. This is because some people are entitled to an enhanced fixed rate. This is a more attractive annuity rate because the life expectancy of the person is likely to be less than that of the average healthy person. The pension provider can afford to offer higher rates because they anticipate they will not have to pay your income for as many years. If you claim to have heart conditions, cancers, breathing difficulties or even health concerns like diabetes, you can qualify for an enhanced rate. Your age will also be considered when you apply for fixed annuities. This is because the later you retire, the more they can offer.
3. Deferred tax payments. This is a great advantage to fixed rate annuities and a reason why these annuities are very popular. You can defer tax payments until the annuity begins paying you. The benefits of this are that you can save for your retirement without having to worry about the tax payments. This makes approaching retirement a lot easier.
Whatever kind of fixed rate annuity you decide to go for, you can be sure that the security and peace of mind that the regular and sustained income offers, will help you plan for your retirement effectively.