“A locked in guarantee”
Guaranteed annuity rates
If your pension scheme provides you with a guaranteed annuity rate (GARs), the amount of income you receive could be much higher. This can be a significant benefit to you as the annuity rates offered under older pensions with GARS can be considerably higher than those currently available, thereby increasing your pension income.
It is, however, important that you check the terms and conditions attached to the guaranteed annuity rate, and that the annuity provided is suitable for your circumstances.
You can find out whether your scheme offers a guaranteed annuity rate and the terms and conditions that may apply by looking at the information you were given when you joined the scheme, or by asking your pension provider. Most schemes that offer a guaranteed annuity rate were marketed in the 1980s and 1990s, when market annuity rates were higher.
Some of the things you should look for when deciding whether to take up the guaranteed annuity rate are:
When can the rate be taken? Some pension schemes only offer the rate at the scheme’s selected retirement date, not if you draw retirement benefits before or after this;
If you want to include a continuing income for a nominated dependent, such as a spouse, does the GAR still apply?
Does the GAR apply if you want to include escalation, so that your income increases each year to offset the effects of inflation?
It’s always a good idea to compare the income available if you take up a GAR with the income available if you shop around, especially if you may be eligible for an impaired life or enhanced annuity before you make up your mind.
Should you have a Guaranteed Annuity Rate applying to your pension it would be advisable to seek professional financial advice in order that you make the most of this important benefit.