Annuities.ie - Types of Annuities

[Single Life Annuity]	[Joint Life Annuity]		[Guaranteed Annuity]

[Overlap]		[Escalation]

Key Factors in Your Choice

There are a number of different options you can choose when setting up your annuity. The options you choose will affect the level of income you receive from your annuity. Annuities are based on a number of factors including your age, the size of your pension fund and the options you select. It is crucial that you select the right type of annuity for you, because you cannot change your mind afterwards. You should consider both your immediate and long term carefully when making your decisions.

Probably the most important factor in selecting an annuity are the rates offered by a insurance companies. For example, currently level annuities produce much higher incomes than inflation proofed annuities. You may feel it unlikely you will live long enough to benefit from inflation proofing your policy.

When choosing your annuity, you are actually making two decisions:

What type of income you want to receive?
How do you want your annuity to change in future?

Single Life Annuity

This means an annuity payable on the life of one individual. It comes into payment as soon as it is purchased, and payment ceases when the holder dies.

If you choose this option the annuity income is paid throughout your life only. When you die, the income will cease. The income you will receive each year from a single life annuity will be greater than a joint life annuity. However, please bear in mind that the income will cease on your death.

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Joint Life Annuity

This is an annuity which depends on more than one life. The most common joint life annuity is one where a continuing pension is paid to a surviving spouse or other named beneficiary following the death of the pensioner.

Joint Life Annuities can be set up as level annuities (i.e. the same amount payable to each person); more commonly, they are set up on the basis that a reduced benefit would be paid to a surviving spouse or dependant. The person to receive the continuing payment after the death of the main pensioner must be identified when the annuity is being bought. If that person does not outlive the pensioner, nothing more is payable.

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Guaranteed Annuity

This is an annuity which depends on more than one life. The most common joint life annuity is one where a continuing pension is paid to a surviving spouse or other named beneficiary following the death of the pensioner.

Joint Life Annuities can be set up as level annuities (i.e. the same amount payable to each person); more commonly, they are set up on the basis that a reduced benefit would be paid to a surviving spouse or dependant. The person to receive the continuing payment after the death of the main pensioner must be identified when the annuity is being bought. If that person does not outlive the pensioner, nothing more is payable.

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Overlap

Sometimes a pension is set up on the basis that there is a minimum guaranteed period of payment, but that the pension payable to the surviving spouse or dependant will begin immediately - on the member's death, and not after the guaranteed period.

This is known as "overlap". Under Revenue rules, this can happen only if the guaranteed period of payment of the main pension is 5 years or less. If it is any longer than 5 years, the survivors pension may not be paid until the instalments of the guarantee have finished.

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Escalation

Annuities can be bought on the basis that the amounts payable will remain level throughout the whole period of payment. Alternatively, they can incorporate increases (i.e. escalation) at an agreed rate.

This might be a fixed rate of, say, 3% compound each year, or it might be linked to increases in the Consumer Price Index, perhaps subject to a fixed "cap".

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Annuities.ie is a Power Life & Pensions Limited website. Power Life & Pensions Limited is regulated by the Central Bank of Ireland. Registered Office: Power Life & Pensions Limited, Kitestown, Crossabeg, Co. Wexford. Registered in Ireland. Company Reg No: 370556. A private company limited by shares and having a share capital. Directors: Annette & John Power