21 December 2023

When you’re talking about guaranteed annuity rates (GARs) or a guaranteed annuity, everything can get a bit confusing. That’s because annuities can come with several different kinds of guarantee.

For example, all annuities give you a guaranteed income. That’s what makes them so helpful when you’re planning your retirement. And when you buy an annuity, you can set up an annuity guarantee period, which can help support a loved one if you die before your annuity ends.

So as you can imagine, it’s easy to mention a guaranteed annuity or a guaranteed annuity rate, meaning a guaranteed income or annuity guarantee period. But GARs are actually very different from them. And if you’re lucky enough to have one, it could be rather valuable.

What is a guaranteed annuity?

A guaranteed annuity is a promise to sell you an annuity that pays out at a specific regular amount when you finally retire.

You might have agreed it decades ago when annuity rates were higher than they are now. So it could give you a better deal than you’d get if you went annuity shopping on today’s open market. That can make a big difference to your retirement income.

Of course, that’s not always the case. For example, if you’ve got health problems you might be eligible for an enhanced annuity, which can also give you a better rate than you’d normally get. And your guaranteed annuity might not include features that are important to you.

So it’s very important to shop around and double check that you’re making the right choice for you before committing to your guaranteed annuity.

What are enhanced annuities?

If you’re facing health problems, your provider could offer you a higher annuity rate. Our article looks at how enhanced annuities work and which conditions are usually covered.

What is a guaranteed annuity rate (GAR)?

A GAR is the rate that you get when you buy a guaranteed annuity from your provider. This affects how much income you’ll receive from your annuity when you retire. Your pension provider might have offered you a GAR when you first set up your pension. Its details often get buried in the small print.

Your provider might call it something like a ‘retirement annuity contract’, or refer to a ‘Section 226 policy’, or just talk about ‘with-profits’, ‘benefits’, ‘preferential’ or ‘guarantee’ annuities. To find out if you’ve got one, the best thing to do is ask them or check with your financial adviser.

It’s also worth noting that you can lose your guaranteed annuity if you change to another type of pension or a different pension provider. So if you’re making that kind of choice, always check to see if you’ve signed up for one.

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What is the annuity guarantee period?

An annuity guarantee period is very different from a guaranteed annuity or GAR. This is a death benefit option that switches your annuity payments to a loved one (usually a partner) for a certain amount of time – up to 30 years - when you die.

An annuity guarantee period will give you peace of mind, but it also means that your annuity income will be a little smaller. Some GARs have a death benefit option built-in, as well as other guarantees such as spouse’s income and increasing payments. If you choose to transfer to another provider, you may lose your guaranteed annuity rate and the benefits that come with it.

What’s next?

If you’re lucky enough to have a GAR, you should still shop around to make sure it’s the best deal for you. And if you don’t, you might still want to find out more about your annuity choices:

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