Guaranteed annuity rates are a feature normally associated with old style Retirement Annuity Plans, which were withdrawn from the market on 30th June 1988.
A guaranteed annuity rate (GAR) was written into the Retirement Annuity Plan’s contract from the outset and guaranteed to provide a minimum annuity rate. but only on or after a set retirement date.
The guaranteed annuity rate was fixed and unaffected by any movements in the ordinary annuity markets.
At the policy’s normal retirement date, the guaranteed annuity rate could be taken up in exchange for the accumulated pension fund.
There are normally strict conditions written into these types of plans.
Policy conditions vary from provider to provider so it pays to read the small print very carefully.
In general, the guaranteed annuity rate does not apply if the policyholder takes benefits from the plan early. Some plans may also penalise late retirement too.
Many plans allow only a short
window in time to apply for benefits.
In many cases, and especially with very old plans, benefits can be rigid with no scope for spouse’s benefits or post retirement annuity income increases.
Pre-retirement death benefits can sometimes also be disappointingly poor.
The main attraction of Retirement Annuity Plans with GARs is that the guaranteed annuity rates can be as much as 4% higher than today's standard annuity rates .
This means a substantially higher retirement income could be available if the option is successfully taken up.
You should note that if you choose to move your pension funds to another pension provider, you would usually lose out on any guaranteed annuity rates that apply to your original policy.
A specialist pension adviser can advise you whether it is a good idea to accept an offer of a guaranteed annuity rate and also show you the other annuity and retirement income options available to you.