Annuities
Frequently asked questions
- What is an annuity?
- When should I buy an annuity?
- Do I have to buy an annuity with my pension provider?
- What is the minimum amount that can be used to buy a Norwich Union annuity?
- What will my income be?
- What is tax-free cash?
- How is my income taxed?
- How will my income be paid?
- How frequently will my income be paid?
- What happens to my income when I die?
- What are the charges?
- Can I change my mind?
- What is inflation?
- What is the Retail Price Index?
What is an annuity?
An annuity is the name given to the product you buy which is a way of providing a guaranteed income for the rest of your life, no matter how long you live. Annuities are only available from insurance companies.
When should I buy an annuity?
You normally buy an annuity when you retire to replace the income you used to receive when you worked.
Do I have to buy an annuity with my pension provider?
You have control over who you choose to buy an annuity from, it doesn't have to be with the insurance company you had your pension with. The amount of income you receive will vary between different insurance companies and so it's important to shop around!
What is the minimum amount that can be used to buy a Norwich Union annuity?
The minimum amount used to purchase our Pension Annuity is £10,000 after any tax-free cash is taken.
The minimum amount used to purchase our With Profits Pension Annuity is £20,000 after any tax-free cash is taken.
The minimum amount used to purchase our Immediate Life Annuity is £7,500 or £100,000 if purchased by the trustees of a Will or Settlement.
What will my income be?
Your income will depend on a number of things, including:
- Your age
- Your sex
- Interest rates at the time you buy your annuity (not for the With Profits Pension Annuity)
- Options you choose to add on to your annuity
- The Anticipated Bonus Rate you choose (if you choose our With Profits Pension Annuity)
What is tax-free cash?
When you buy a pension annuity, you can normally choose to take up to 25% of your pension fund as a tax-free cash lump sum. This may be paid by your pension provider or Norwich Union depending on how you choose to buy your pension annuity.
The rest of your pension will be used to buy a pension annuity which will be paid by Norwich Union.
How is my income taxed?
Pension Annuity and With Profits Pension Annuity
- Your pension will be treated as earned income and taxed according to your personal circumstances.
- Your pension payments will normally be made after the tax payable has been deducted.
- Any payments made to your or your dependant's estate may be subject to inheritance tax.
Immediate Life Annuity
If you're buying the plan with your own money, HM Revenue & Customs is likely to agree that each of your payments can be split into two parts:
- A 'capital part' - which is tax-free
- An 'interest part' - which is taxed
We will normally deduct tax from the interest part at the savings rate. If you're a higher rate taxpayer, you'll have to pay additional tax to HM Revenue & Customs.
- Please note we've provided only a general tax summary and individual circumstances may differ.
- Your financial adviser can give you more details about your tax position.
- Tax rules can change.
How will my income be paid?
Your income will be paid directly into your UK bank or building society account.
How frequently will my income be paid?
Your income can be paid monthly, quarterly, half-yearly, yearly. These can be paid either:
- 'in advance' (this means that the payment of your annuity income will be from the start date ), or
- 'in arrears' (this means that the payment of the annuity will be one month, quarter, half-year or year after the start date, depending on the frequency of the payments chosen).
- 'chosen start date' (this means you can choose to have your income paid on a certain date each month. The first payment must be paid within one month of the start date of the plan and is only available if paid monthly).
If you choose our With Profits Pension Annuity your pension income can be paid monthly or yearly in advance or in arrears only.
If you choose our Immediate Life Annuity your income can be paid monthly, quarterly, half-yearly or yearly in advance or in arrears only.
What happens to my income when I die?
Your annuity will end when you die unless:
- You have chosen a guaranteed period. If you die within that time, we'll pay the remaining payments to your estate.
- an annuity is to be paid to a dependant or if you've taken out an Immediate Life Annuity with someone else and they are still alive.
- You have chosen to protect your capital on an Immediate Life Annuity. When you die, if the total payments we've paid (before tax) are less than your single contribution, we'll pay the difference to your estate.
What are the charges?
Pension Annuity and Immediate Life Annuity
We use your pension fund or single contribution to pay our charges for setting up and running your plan. We do this by taking these charges into account when we work out your income. No further charges will be taken.
With Profits Pension Annuity
We take our charges into account when we work out the price of your initial pension and when we decide the bonuses to add to your pension each year.
Can I change my mind?
It is important to choose an annuity that is right for you. The options you choose at the outset cannot be changed once you have bought your annuity and it has no cash in value at any time.
Pension Annuity
You can change your mind within 30 days from the date you sign the application form. If you cancel during the 30 day period, we will refund any payments.
The refunded payments may be less than the amount paid to buy your retirement benefits if our annuity rates have changed. If the right to cancel is exercised, we will refund any payments to the previous provider / Scheme only when the customer has returned any annuity payments made and any tax free cash lump sum they chose to take has also been returned.
With Profits Pension Annuity
At any time after the first year you can:
- change the Anticipated Bonus Rate within our limits at the time.
- convert your plan to a conventional Pension Annuity.
In both cases, we'll recalculate your pension.
You can change your mind within 30 days from the date you sign the application form. If you cancel during the 30 day period, we will refund all payments. If the right to cancel is exercised, we will refund any payments to the previous provider / Scheme only when the customer has returned any annuity payments made and any tax free cash lump sum they chose to take has also been returned.
Immediate Life Annuity
You can change your mind within 30 days from when you receive the 'Your right to change your mind' document. If the cost of buying your plan has fallen, you'll only get back this lower amount.
What is inflation?
Inflation is the changing cost of a large 'shopping basket' containing the goods and services bought by a typical household in the course of a year. The basket is reviewed every year. New items are added, and others removed, solely with the aim of producing reliable measures of inflation. The changes do not necessarily imply that these specific goods and services have grown or fallen significantly in popularity recently.
What is the Retail Price Index?
The Retail Price Index (RPI) is a measure of inflation often described in terms of a shopping basket containing some 650 goods and services, chosen as indicators of price movements for a range of similar items.
WC01006 05/2008