Annuities
Annuities
An annuity is a type of pension plan that turns your pension fund into guaranteed monthly payments for the rest of your life, or for a fixed period of term. You have the option to purchase an annuity with all or a portion of your pension funds when you retire.
The monthly annuity income you receive depends on a number of important factors.
- Your age
- The amount of money in your pension pot
- Your health and lifestyle
- Any options you choose as part of your annuity (such as an income that increases over time)
Annuity options
- A fixed or increasing income
You can choose a fixed income annuity that always stays the same or you can set your income to increase every year to help you keep up with inflation. It can increase by a set percentage or in line with the Retail Price Index (RPI). It’s worth remembering that the higher the increase you choose, the lower your starting income will be.
- Payment options
You can choose monthly or yearly payments and you can select to be paid at the start (in advance) or at the end (in arrears) of the month or year you’ve selected.
- Guaranteed minimum payment period
You can guarantee to have your income paid for a certain amount of time – up to 30 years – once your annuity starts. If you die during this time, the payment can be paid to anyone you choose until the end of this period.
- Options to support your dependants
You can continue to have your payments paid to a loved one after you die by choosing either 50%, 67% or 100% of your income.
What happens to my annuity pension when I die?
What happens to your annuity after you die will depend on the type of annuity you have. When you die, most annuities stop paying out. While there are additional policies such as value protection and guaranteed term policies that can extend your annuity to your next of kin or dependent children.
One exception to this is the joint-life annuity which will cover your spouse or other designated family member in case you die first.
Advantages of Annuity
- Your guaranteed income will give you peace of mind.
- You can make plans for the future knowing how much income you’ll have.
- You can get inflation protected annuity– some annuities rise with inflation. These ‘escalating’ annuities give a lower starting rate but will ensure your income keeps up with inflation.
- It’s possible to provide an income to your spouse, partner or dependent children.
- Annuity income can be combined with other types of retirement income.
- The Financial Services Compensation Scheme protects your annuity income, so you’ll keep receiving your payments even if the company paying you runs into difficulties.
Disadvantages of Annuity
- You cannot change your mind after purchasing annuity, they are irreversible.
- Annuities are not flexible- once you purchased then you cannot change the payment amount.
- No potential for growth because the majority of annuities are not correlated with investments. This means that your income may end up smaller than it would have been remained invested.
- The annuity provider would take all of the money if you passed away the day after you take a single-life annuity. This implies that you would have nothing left over from your pension to leave to your family.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
TO ARRANGE A FREE NO OBLIGATION INITIAL MEETING. SIMPLY CONTACT US BY USING THE FORM ON THIS PAGE.
