Annuity Provider
The insurance company issuing the annuity contract.

Annuity Income
The total amount of received from the annuity each year.

Annuity
An Annuity is a contract between an Annuity Provider and you under which you, the pension scheme member, hands over all or part of your pension fund to that insurance company in return to them agreeing to pay out an ‘Annuity’, a regular payment to you for the remainder of your life.

Annuitant
The person entitled to receive the income from an annuity. See Primary Annuitant

Commutation
This is a term used when taking a lump sum of your pension pot. A tax free lump sum commuted from a pension fund can be paid to the scheme member at retirement.
Also See Triviality

Dependant
A person nominated, at the start of the annuity, who is financially dependent upon you

Enhanced Annuity
Enhanced annuities are a type of annuity that gives the pension holder a higher income due to a medical or lifestyle reason that shortens life expectancy. For instance, this may include habits such as smoking or drinking, medical history or lifestyle.

Escalation Rate
This is the rate the annuity increases each year. This may be a fixed percentage (e.g 3%) or linked to inflation increases (i.e. RPI linked)

Frequency
See Payment Frequency.

Guaranteed Annuity Rate
Some pensions saving products contain a Guaranteed Annuity Rate. This is a minimum rate by which the pension fund can be converted in annuity income.
Guaranteed Period
The guaranteed period is an option that can be chosen on an annuity. The guaranteed period selected can be up to 10 years from the start of the annuity. If you die within the guaranteed period the payments will continue until after your death until the end of the guaranteed period.

Impaired Annuity
See Enhanced Annuity.

In advance/In Arrears
This refers to the payment of the annuity. With In advance the first payment is at made at the start of the annuity and at the start of each Payment Period thereafter. Conversely, In Arrears, no payment is made at the start of the annuity, and payment is then made at the end of each payment period.

Income Drawdown (sometimes called Unsecured Pension)
This is an alternative to buying an annuity. Under this arrangement you take income is directly from your pension fund. This is not offered by Annuity-Market Should you be interested in Income Drawdown, Annuity-Market is able to refer you to a specialist adviser.

Inflation
The common term used to describe the general increase in prices over time. (See Retail Price Index.)

Internal Vesting
An internal vesting is where an individual purchases their annuity with the same insurance company as they have their pension fund with. i.e. the individual did not exercise their Open Market Option.

Investment Linked Annuity
See Unit Linked Annuity.

Joint Life Annuity
A joint life annuity will transfer annuity income to a named dependant in the event of the death of the annuity buyer. The buyer chooses whether income is paid to a dependant.

Level Income
The annuity payments remain unchanged throughout the annuity. The annuity payments do not increase.

Lifetime Allowance
The Lifetime Allowance is the limit on the value of retirement benefits that you can draw from pension schemes before tax penalties apply.

Lump Sum
See Pension Commencement Lump Sum (PCLS)

Open Market Option (Market Option)
The Open Market Option is the right of the individual to take their pension fund and purchase their annuity from another insurance company other than the insurance company who they have their pension fund with. The OMO allows you take advantage when other providers offer better annuity rates than your current Pension Provider.

Payment Frequency
Payment frequency is the number of times per year that annuitdy payments are made. Typically 12, 4, 2 or 1 (i.e. paid monthly, quarterly, half yearly or yearly).

Pension Commencement Lump Sum
The cash amount that is available from your pension fund at the start of the annuity. The Pension Commencement Lump Sum is typically limited to 25% of the pension fund and is paid tax-free.

Pension Fund
The total amount you have accumulated in your pension plan.

Pension Plan
This is the existing pension saving arrangement you have with an insurance company (or company scheme).

Pension Provider
The company with which your currently hold a pension plan.

Quotation Guarantee Period
The length of time that an annuity provider will hold the annuity quotation unchanged. Typically 14 days.

Retail Price Index (RPI)
The RPI is a measure of the costs of a defined list of typical household goods and services. The change in the RPI overtime is usually referred to as inflation.

Single Life Annuity
A Single Life Annuity is an annuity where the annuity payments cease on the death of the primary annuitant (unless a guarantee period has been selected).

Spouse/Dependants Annuity
The payments made to the spouse/dependant after the death of the primary annuitant.

Tax Free Lump Sum
See Pension Commencement Lump Sum.

Triviality
If you have retirement benefits that are valued at less than 1% of the Lifetime Allowance (i.e. less than £18,000 in the 2011/12 tax year), they may be commuted for a one-off lump sum.

Unit-linked Annuity
A type of annuity where the level annuity payments vary with investment performance of the funds in which the annuity is invested. This is typically more risk with this type of annuity. Unit-Linked Annuities are not offered by Digitalis. Should you be interested in Unit Linked Annuities, Digitalis is able to refer you to a specialist adviser.

Unsecured Pension (USP, Income drawdown)
Upon retirement, the pension holder can keep their pension fund invested and take income from that invested fund rather than purchase an annuity. There is an element of risk in this and it is generally recommended for those with a large pension fund or those with alternative sources of retirement income.

Value Protection (Capital Protection, Annuity Protection)
Annuity protection guarantees that the pension fund (less annuity payments already paid) is given to a named beneficiary after tax. Generally an option only for deaths before the age of 75.

With Profits Annuity
A with-profits annuity directly links annuity income with the performance of a with-profits fund. Therefore, the retirement income is linked to an annual bonus rate declared by the annuity provider, rather than a guaranteed lifetime income.

With Proportion/Without Proportion
Proportion is relevant to those annuity buyers who have chosen to receive their annuity income payments in arrears. With proportion means that the final proportionate payment is made to your estate to cover the period between last payment and death. Without proportion refers to final annuity payment a the last scheduled payment before death.