You have many choices when purchasing an Annuity. If income is paid monthly, yearly or arrears, should it be in advance? What is the guarantee period? Do I need it? What is the minimum income my spouse needs if I pass away before them?
All these decisions must be made with the knowledge that, once your Annuity is purchased, it cannot be changed.
It is important for business owners to realize the importance of managing their receivables. This is a difficult task that takes up a lot of time. Collection agency services can relieve you of the stress that this will place on your business. You should focus your attention on your core business operations and not worry about business debt collection. Many organizations offer this service. You can not only resolve your debt problems by hiring one of these organizations, but you can also increase your income.
The more options that you add to your Annuity, the lower your initial income will be. What does each option entail and how much will it cost you?
Be sure to carefully review the packages and services offered by a company before you make an investment. You should not burden your business with the hassles of debt collection. Instead, you should free it from these challenges by providing a good and clear service. You may be aware that debt collection is a difficult task, so those who handle it should have a good understanding of how to work with customers. They should not give the wrong impression of your company to potential clients. These agencies need to be prepared for the emotional rollercoaster that can accompany debt collection.
Costs v Benefits
Three of the most popular Annuity options are escalation, a guaranteed period and a pension for a spouse.
These are some interesting facts we’ve found about the costs of each option.
The option that costs the least is to include a guarantee period.
* The next cheapest option is to include a pension for your partner. This would reduce your income by about 10% per year.
Escalation is the option that has the highest cost.
Our research has shown that while cost is a major factor in deciding the shape of an Annuity, this is not the only issue. Many people rely on their Annuity as a large part of their retirement income. It is important to consider not only the cost, but also its shape to ensure that it will last for many years.
Asking for references is the best way to be certain of a company’s experience and work ethic. A reputable company should not hesitate to share this information with you. You should check the past treatment and style of the business. There are many different methods for collecting debts. The laws for debt collection vary from one state to another or even country to country. Be sure that the collection agency’s services are legal and up-to date.
What are the options available and what do they cost exactly? If you would like to know more about your specific situation, we recommend that you speak with an IFA or consult a pension calculator.
Payment frequency
You can choose to receive payments monthly, quarterly or annually. You can choose to receive your payments in advance i.e. At the end of a time period.
A male 65 years old will see his income reduced by just over 3 percent, and a woman of the same age by less than 3 percent.
In general, accounts that are behind in payments or collections will be marked as skipped. The accounts were moved but no forwarding information was left. It will take a long time and money to track down skips, so the services of collection agencies can include skip tracking.
Guarantee Period
An Annuity pays out for as long as you live or, if you’ve included a spouse pension, the life of your spouse if they survive you. A guarantee period ensures that income will be paid to you for at least five or ten years, depending on whether a spouse’s benefit is included.
An Annuity can have a guarantee period of five or ten years. The cost of such an addition is minimal, as most people statistically will live longer than the specified periods.
If a 65-year-old man wants his monthly income paid in arrears, the income starting point will be reduced around 4%. This rises to 5.5% with a 10-year guarantee. The figures for a woman are 3.29 and 4.45 respectively.
A series of letters is one of their main tools. As a client you can ask to see a copy of the letters so that you can check their approach in collecting debts from your clients. The use of certain words can change the perception of your company. You can compare the style of an agency with other businesses by simply reading their letters. It works just as well if they are using phones to collect. Just as you would with the letters, evaluate their scripts for phone calls.
Pension for spouse
The spouse’s pension will ensure that your spouse continues to receive the income from your Annuity after you die.
You will also need to choose the level of income that your spouse will receive after you die. The most common levels selected are 50%, two-thirds, or 100%.
If a 65-year-old man’s wife is 63, and the income is paid in advance each month, adding a 2/3 spouses pension will reduce his starting income around 13%. A 50% spouses pension will reduce it by a little over 10%.
If a woman is 65 years old and her husband three years older, the reduction for a spouse’s pension of two thirds would be around 10%. For a pension of 50% it would be 8%.
Escalation
Addition of escalation to an Annuity will increase it each year. This option allows for an annual increase that is either a percentage or an index. The RPI (Retail Prices Index) is usually used.
The most expensive option, but it is worth considering as it helps to maintain your purchasing power.
You can use these methods to ensure that you get the best services, and know exactly where your money is being spent. After you have done enough comparisons, you can now make a decision. Only trust agencies who meet or exceed your expectations. You will be able to grow your business by eliminating all unpaid debts.
If a 65-year-old male added an annual RPI to a monthly Annuity, the income would be reduced by 39%. However, if you selected a 5% increase per year this number rises to a little over 45%.
If RPI is included, a woman who is 65 years old and wants her income paid in advance each month will see a reduction of just over 41%. This figure rises to about 48% with an escalation factor of 5%.
Small print is important
In order to calculate the figures, we used the highest paying Annuity provider’s income.
The Exchange was used to source the Annuity rates, which were based on those that were applicable between 17th and 20th of June 2011.
The Annuity Rates assume that there is no improvement in health or lifestyle.
The actual income you receive from an Annuity may be lower or higher than what is shown in the table, depending on your personal circumstances, the Annuity rate at the time of purchase and, of course, the options that you choose.
