Your annuity & pension questions answered

We understand that you may have lots of questions about your pension(s) and how annuities fit in with potentially generating your pension income, so we've collected common questions from our customers and answered them to help you get your head around the jargon quickly and easily.

• Will the size of my pension pot affect my state pension?

Your entitlement to a State Pension isn't affected by whatever you've saved or built up in your pension pot. You can claim it when you reach the legal State Pension age. This will depend on your gender and the year you were born. You can also choose to defer your State Pension if you're still working and don't yet need the income.

Once you've reached State Pension age, there are several factors that will determine how much you get, including the number of years you paid National Insurance contributions, or received National Insurance credits, and whether you've chosen to defer it. Use the Government’s calculator to find out when you're eligible to start taking your State Pension and how much money you might receive.

• What is an Open Market Option?

You have the right to shop around for a better annuity at retirement. Taking time to compare annuities and shop around could result in you receiving a higher rate of income in retirement than if you were to stay with your pension provider.

• What is a pension pot?

A pension pot is a term used for the total value of the pension contributions made by you and your employer and any growth made since you started your pension. You may have several pensions from different companies which, added together, will form your pot.

• What is a SIPP?

A Self Invested Personal Pension (SIPP) is a tax efficient way of either saving for your retirement with monthly contributions, a lump sum or a combination of both.

They are flexible and under your control; you manage your money and invest it in the funds and shares that you select.

If you're a novice and not confident investing in the stock market and other various investment options then most "platform providers" have a selection of ready-made portfolios you can choose from.

If you're a savvy investor, a SIPP may appeal as it allows you to pick and choose your investments and make regular trades if you wish to do so.

With a low charging structure and readily accessible online or on your mobile, SIPPs have become a popular way to manage your pension.

• How much will your annuity service cost me?

Over50choices offers free annuity guides and information. We have also teamed up with Age Partnership, who can provide annuity and pensions advice if you wish.

• How can I find out how much I have saved into my pension?

Each pension provider you've saved with during your working life should send you a pension statement outlining the current value and the expected or estimated value of your pension plan at retirement. If you don’t have any statements, but you have details of your pension provider, then contact them in the first instance. To trace lost pensions, you can use the Pension Tracing Service.

• Do I have to use my entire pension fund to buy an annuity?

Under current taxation rules, you don't need to use all of your pension pot to purchase an annuity. You can take up to 25% as a tax-free lump sum or if the total of all your pensions is less than £18,000, you may take the entire amount tax-free.

• How will my pension plan provide me with an income in retirement?

You can use your pension pot to purchase an annuity or other financial products such as a drawdown pension. These products provide an income throughout your retirement.

• Can an annuity be altered at a later date?

Once you have bought an annuity or enhanced annuity you can’t change it in any way. If you buy a fixed-term annuity, you can change your benefits at the end of the plan term by reinvesting in another pension product.

It's therefore important to consider your options carefully before buying an annuity.

• Do I have to purchase an annuity through my existing pension provider?

No - you don’t. You could obtain an improved income in retirement if you shop around.

This process is known as taking the Open Market Option. Shopping around will give you the opportunity to search the whole of the market for the best rates and see whether you qualify for an enhanced annuity.

• Do I have to take an annuity?

No, you have several options since the changes in 2015.

You can purchase an annuity with your pension pot, but you don't have to do it through your company scheme if you have a pension scheme through your employers.

You could also take some as cash and or use an alternative to an annuity, known as a drawdown or flexible pension, using a  SIPP.

• I have a history of health conditions - can I still get an annuity?

Yes – in fact, with certain medical conditions you may qualify for an enhanced annuity, which pays higher rates to people with poor health or lower-than-average life expectancy.

• Is there a difference between annuity providers?

Deciding which provider to select is often driven by the income you receive and the features of the products offered. Some providers only offer certain benefits, so it’s important to compare on a like-for-like basis.

• Can I get a better annuity rate if I'm a smoker?

If you smoke cigarettes, cigars or tobacco regularly, you need to disclose this when requesting a quotation as this may qualify you for an enhanced annuity. Because your life expectancy may be reduced when compared to the average, some specialist providers may offer more income than is available from a standard annuity.

• Can I get a better annuity rate if I suffer from an illness?

Some illnesses do mean you qualify for an enhanced annuity. Providers base their rates on a number of risks, one of which is life expectancy. If there is a chance that your life expectancy could be deemed 'shorter than average' as a result of your illness, a specialist annuity provider could offer a higher income than what’s available with a standard annuity.

• Will my partner get any money from my annuity when I die?

This depends on how you set up your annuity at the outset. Most annuity providers offer you the option to continue to provide an income when you die. These options include a joint annuity, guarantee period and value protection.

To help you see how much extra retirement income you could get, why not use our quick and easy annuities calculator. Then, if you want more information, the experts at Age Partnership are on hand to help.

• How do I calculate my pension income?

When you approach retirement, you'll likely start to consider what your income will be when you leave employment. Hopefully, over the years, you'll have contributed to at least one pension scheme.

Your income needs may also change when you retire; your children may have fled the nest and you may have paid off your mortgage. However, whatever your circumstances, it's a good idea to consider how much income you need.

You will of course receive the state pension if you've reached normal retirement age, in addition to any employment and/or personal pensions.

Once you've established your total pension pot, you can use a pension income calculator to give you a good indication of what your pension income is likely to be. At this point, you should also consider whether you need specialist pension advice to help you make your money work hard for you in retirement.

• What is a defined benefits pension?

A defined benefits pension scheme is one that you have with your current (or previous) employer(s), that will "define" what your income will be at retirement - usually based on a percentage of your final salary.

They often come with other benefits, such as life insurance and pensions for your spouse and children.

Under the new pension rules, you're no longer bound to keep this type of pension with your employer's scheme, but you should think very carefully before transferring it elsewhere due to the potential additional benefits.

If your defined benefits scheme is worth more than £30,000, it's a regulatory requirement that you take pension advice.

• What is a defined contribution pension?

A defined contribution pension scheme is one that you and, if applicable, your employer, make contributions to (usually monthly) to help grow your pension pot for when you retire.

When retirement comes, you have a choice of where to invest your final pension pot - or pension pots if you have perhaps changed jobs and had several pension schemes.

The government's Money Advice Service has a useful explanation if you would like more information.

• Do I have to take pension advice?

You have to take advice on your pension if you have a final salary/defined benefits scheme worth more than £30,000 or a defined contribution scheme worth more than £30,000 where there's a guarantee about what you'll be paid when you retire. Outside of this, the choice of whether to take advice is up to you.

It could of course be prudent to take advice when large sums of money are involved and a good place to start could be the government's Pension Wise Website.

• How do I find any lost pensions?

If you've had more than one job where you paid into a pension scheme, the chances are you've left behind some pension pots. But don't worry, you can track them down with the help of the government's pension tracing service.

• How much is my pension pot worth?

Firstly you should establish whether you have more than one pension pot. If you're not sure then you can use the pension tracing service. Once you've established the value of your total pot, you can then use an online pension calculator to get an indication of the approximate income you could derive from your money.

The Age Partnership pension calculator might be a good place to start.

• What happens to my pension pot when I die?

Where you've invested your pension pot will determine what happens to it when you die.

If you've invested in a drawdown pension arrangement then in the event of your death the money will be returned to your beneficiary, minus the standard nominal fees.

If you've invested in an annuity, the money left is lost upon your death and not returned to your estate (unless you have opted for a spouse/partner and or protected annuity).

Your financial adviser can help you with this.