RPSM09202030 - Member pages: Member benefits: Pension benefits from a defined contribution or cash balance arrangement: Lifetime annuity contracts

Lifetime Annuity Contracts

As an alternative to a secured scheme pension you may wish to use your fund to purchase a lifetime annuity contract from an insurance company of your choice, basically a contract to provide you with income for life.

These are generally more flexible and many insurance companies market annuities which will factor in issues such as, for example, whether you:

• have a lower than normal life expectancy for a person of your age,
• wish to receive a pension based on the performance of the stock market
• want to receive an increase to your annual pension not otherwise provided by the scheme

If you are offered a scheme pension and decline the offer and decide to obtain a lifetime annuity you must tell the scheme administrator that you want to do this, the type of contract you want and which insurance company you want them to purchase the annuity with. The scheme administrator will then buy that contract from the relevant insurance company.

The annuity contract may be purchased in the name of the scheme trustees or in the name of the member. In either case, you should note that you are essentially giving up your right to the fund and will have to abide by the decision you made as the annuity will be an irrevocable contract with the insurance company. Even if the annuity is in the name of the trustees, their liability will be limited to the terms of the insurance contract.

Example

Pauline wishes to receive her retirement benefits and her scheme has offered a scheme pension of £10,000 per annum with increases annually by reference to RPI. However Pauline has a history of heart complaints and considers her life expectancy may not be as high as for someone else of her age. After seeking medical advice on her condition an insurance company has offered her a lifetime annuity contract which will provide £12,500 per annum each year with an annual 3% increase. Therefore Pauline informs her scheme administrator of the details and they will purchase the annuity contract on her behalf.