What is an Annuity?
Annuities convert your pension savings into an income.
Since April 2015 you can now withdraw as much of the money you want to, from your pension savings, once you reach 55. Be careful, it will be taxed as income.
How do Annuities work?
An annuity is a financial product that enables you to convert your pension savings into a monthly or yearly retirement income for you to live on.
The amount you will get depends on things like how old you are: the younger you are when you retire, the less you get each year, whether you want your annuity to pay an income to your spouse or partner when you die, your health, your previous occupation and even your post code.
It’s worth talking to us about the best type of annuity for you and which company will pay you the highest income.
Open Market Option
If you have a pension fund, you should be told that as an alternative to buying an annuity from the company you have saved with, you have the option to take the fund to another company and buy it from them.
Budget 2015 : Budget Changes
April 2014’s budget announced that, from April 2015 onwards, people were able to access their defined contribution (DC) pensions as they choose from the point of retirement and not have to purchase an annuity.
The government also proposed, and subsequently introduced, changes to the tax rules to allow annuities to become more flexible and make them a more attractive option.
Annuity providers will be allowed to vary the amount of income they pay. You may wish to take less to begin with and larger sums later on. New rules will allow you to take a lump sum from an annuity, provided you agree to this when you buy one.
Your family will be allowed to be paid from your pension after you die. Guaranteed annuities pay out to your beneficiaries after you die, but usually this only lasts for 10 years after you bought the annuity.
Different Types of Annuity
The main types of annuity include:
- Lifetime or fixed term
- Single life or joint life
- Enhanced Annuities
- Fixed income, escalating income or investment-linked income
Inflation will reduce how much your income is worth over the years.
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