19 April 2024

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 retire. A guaranteed annuity rate (GAR) is a promise by your pension provider to give you a specific annuity rate when you retire.

You might have agreed it back in the 80s or 90s, 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 is a guaranteed annuity rate?

A guaranteed annuity rate 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.

Why is it good to have a guaranteed annuity rate?

It’s good to have a guaranteed annuity rate because it could be much higher than current market rates. That’s because guaranteed annuity rates were usually set in the 80s or 90s, when annuity rates were much higher.

What’s a good guaranteed annuity rate?

Guaranteed annuity rates can go as high as 12%. That’s roughly double the best rates you’ll see on the market today. So (unless you qualify for an enhanced annuity) you could get twice the income you’d get from a non-guaranteed annuity rate annuity.

Can I lose a guaranteed annuity rate?

You can lose your guaranteed annuity rate if you change to another type of pension or a different annuity provider. So if you’re making that kind of choice, always check to see if you’ve signed up for one. If you choose to transfer to a flexi-access pension, you may need to speak to a financial adviser first. If you don't already have one, you can find one at Unbiased

There might also be restrictions on when you can set up your annuity and take your guaranteed rate. For example, you might have to buy it on your actual birthday, at a certain age or on your chosen retirement date.

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.

How do I find out if I have a guaranteed annuity rate?

It can be difficult to find out if you have a guaranteed annuity rate. It’s a detail that often gets 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.

So to find out if you’ve got one, the best thing to do is to either ask your provider directly or check with your financial adviser. Make sure you also check for any restrictions on when and how you can buy your guaranteed annuity.

What is the annuity guarantee period?

An annuity guarantee period is very different from a guaranteed annuity or guaranteed annuity rate. 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.

Are there other kinds of annuity guarantee?

Yes - 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.

That can make things a little confusing. 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 guaranteed annuity rates are actually very different from them. So when people or companies start talking about annuity guarantees, it’s important to make sure you understand exactly what they’re describing.

What should I do next?

If you’re lucky enough to have a guaranteed annuity rate, the first thing to do is make sure you don’t miss out on it. Check with your provider or financial adviser to make sure you know about any restrictions on when or how you can take it up.

You should still shop around to make sure that your guaranteed annuity is the best deal for you. And if you think you might have one but aren’t sure, again ask your provider or financial adviser.

You can also:

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