I have been diagnosed with one of the illnesses listed above, can my income be enhanced?

Unfortunately not, we can only offer enhanced rates on your annuity at the time it is purchased.

What is the minimum amount that can be used to buy an Enhanced Annuity?

You may buy an Enhanced Guaranteed Pension Annuity or a With-Profits Annuity if you have a pension fund worth £20,000 after taking any tax-free cash.

How much extra annuity could I receive?

The enhancement paid varies by the severity of the condition, but typically customers who do qualify could expect to receive an increase of between 2% and 15%.

How long does it take to receive an Enhanced Annuity quotation?

In most cases, an illustration will be provided within 72 hours using the information in our questionnaire. For more serious conditions, we will need to obtain detailed medical evidence by writing to your GP. This means the process will take a little longer, but this will enable us to offer you the best possible terms.

Do you offer Enhanced Annuities to someone who smokes?

No, we do not offer an Enhanced Annuity to someone who smokes, however if you or your dependant on a joint-life plan, suffer from any related illness that could reduce your life expectancy, we may still be able to offer you an Enhanced Annuity rate.

What illnesses qualify me for an Enhanced Annuity?

We may offer an enhanced income to you or your dependant, on a joint - life plan, if you suffer from any one of the illnesses covered by our plan that reduce your life expectancy. An enhancement is not guaranteed, and it will be dependent on the severity of the condition. Below are some typical examples of the illnesses, which could qualify for enhanced terms:

• Stroke
• Heart disease
• Diabetes
• Cancer
• Liver disease
• Kidney disease
• Lung disease
• Diseases of the central nervous system

However, this isn't a comprehensive list, so it's worth checking if specific medical conditions are included. Please speak with our Prudential Consultants, or your Financial Adviser for further guidance in this matter.

Do I need to take a lump sum annuity?

Although most people decide to take a tax-free cash sum up front, you don't have to. You could keep it in your pension fund and use it to buy a larger retirement income. However, as the income payable through a personal pension or retirement annuity policy is taxable, this may not be the most tax-efficient way to provide any extra cash flow you need. You will lose any right to a tax-free lump sum if you are not paid it before your 75th birthday.

An option might be to consider using your tax-free cash sum to secure what is known as a purchased life annuity where only a part of the income is taxable. Your Financial Adviser can help you with this.

How will my income be paid?

Your income will be paid in regular instalments. You can normally choose to be paid monthly, quarterly, half-yearly or yearly, and 'in advance' (at the start of the period) or 'in arrears' (at the end of the period). Whatever the frequency, you'll get the highest income if you can be paid in arrears.

Will my wife/husband/civil partner continue to be paid after I die?

Your wife/husband/civil partner will continue to receive annuity payments after you die if you purchase your annuity on 'joint-life' terms.

When should I buy an annuity?

You don't have to buy an annuity when you reach the retirement age shown on your pension plan. You may be able to continue working full or part-time and make extra payments into your pension pot, or you can just leave your fund invested while you make a decision. The Government has changed the minimum retirement age to 50 for all pension plans. Then, from 6 April 2010, to 55. Regardless of the type of pension you have, you don't have to stop working to take income from your pension. However, if you decide to take any Tax Free Cash, you must do this before you're 75th birthday.

How am I taxed on the income from my annuity?

If you are a United Kingdom basic rate taxpayer, you will be taxed at the rate of 22% on your annuity income. If you are a higher rate taxpayer, you will be taxed at this higher rate.

What is the Open Market Option?

The Open Market Option means you are free to shop around and choose who you purchase your annuity from. Annuity rates can vary considerably between providers and, even with one provider, the rates can differ according to the annuity options you choose. The top provider for one set of options may not come out on top for another set.

Some providers may only accept pension funds above a certain value, and the minimum will also vary between providers. Prudential's minimum for a Guaranteed Pension Annuity and Inflation-Proof Annuity (called the Index-Linked Annuity) is £10,000 after tax-free cash. If your total pension fund from all sources is small, you may not be able to use the Open Market Option because of this size restriction.

What kind of annuity is right for me?

There are several types of annuity you can buy with your pension fund to turn it into an income:

• With-Profits Annuity - this is the most common form of investment-linked annuity. The income you receive each year depends upon the performance of the With-Profits Fund, the way in which your annuity is arranged at the outset and any bonuses that we announce. Your income has the potential for growth above inflation over the long-term. Income from With-Profits annuities can go down as well as up.
• Guaranteed Pension Annuity - this is also known as a conventional annuity that could either provide from the outset a guaranteed level income that you will receive from year to year. This allows you to budget easily, but your spending power can be reduced by the effects of inflation. Or you can help to give your income some protection by choosing fixed yearly increases, or by keeping it in line with inflation, but you will need to accept a lower starting income.
• Enhanced Annuity - the two annuities above may be available on enhanced terms to give you a higher income should you be suffering from a serious medical condition.
• Flexible Lifetime Annuity - this option is for people with a pension fund of £75,000 net or above, who want more choice over the income they receive and how their money is invested. The value of your investment may go down as well as up. This means that your income in retirement has the potential to increase or decrease.

What Is An Annuity?

The answer to "what is an annuity" is that it is an arrangement that guarantees to provide you with an income for the rest of your life in return for you paying over a lump sum from your pension fund.

An annuity is a distribution of money earned on an investment on a set schedule such as quarterly, biannually, or annually. Typically, an annuity is used as part of a retirement plan, to ensure a fixed and stable income once the annuitant, or recipient, stops working, and an annuity may be designed to provide income for two. A common form of annuity is a retirement pension. While the retiree was working, he or she paid into a pension fund which was invested. After retirement, the return on the investment takes the form of an annuity distributed to the retiree.

Most people work with a firm to set up an annuity. The annuitant can either invest in installments, or purchase an annuity with a lump sum. Unlike life insurance, an annuity does not require a physical examination and is used to fund the individual during his or her lifetime, rather than surviving children or partners, except in certain circumstances. When the annuity is established, the annuitant signs a contract which outlines the exact terms of the annuity, including the length of time that it covers and whether or not it will be fixed.

A fixed annuity is a safer investment, because it guarantees the return of a set amount of money with every payment. However, should the market improve, the annuity payments will still remain the same. In a variable annuity, the payments will vary depending on how well the investment is performing, which can translate into making more money, but can also result in much smaller payments in a weak market. A financial planner can provide advice on which option is better for the annuitant. For example, a couple might want to consider one fixed and one variable annuity, while a single retiree who intends to rely solely on the annuity for income should probably choose a fixed annuity.

In most cases, the annuity ceases once the annuitant dies. In rare instances, an annuity can be contracted to roll over to a surviving spouse or minor children. This is common with government pensions, which surviving children can collect until they turn 18 or 21, depending on the prevailing laws. Most financial firms establish annuities which end with death, under the assumption that some annuitants will die before they have made the return on their investment, while others will outlive their investment, leaving a margin for profit if the company invests well.