Pension Annuity
Eliminate investment risk with an annuity – an insurance policy which pays you a guaranteed pension until you die. You can choose optional extras like an increasing pension, a pension payable to your partner when you die (a spouse’s pension) or a guaranteed minimum payment period to give you and your loved ones more financial security.
Pension Annuity
The best annuity rate depends on the following: –
- How much your pension savings are worth.
- Your age.
- If you want your pension to remain level or increase.
- If you want your pension to continue to be paid to your spouse if you die first.
- Your state of health.
You don’t have to buy an annuity from your current pension provider. We can shop around to find the best annuity rate for you.
Independent Financial Advice
Draw an optional tax-free cash lump sum of up to 25% of your pension, then use the balance to buy an annuity.
If you buy an annuity, you won't take any investment risk with your savings.
Annuity income is guaranteed for life.
Annuity income can either be level or increase at a fixed or a variable rate.
Add a spousal pension of up to 100% of your pension, which will be paid if you die first.
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FT Adviser, November 2019
FAQ
Frequently Asked Questions
The information provided in these FAQs does not constitute professional financial advice. We strongly recommend that you consult a professional adviser before proceeding with a financial transaction.
What's the difference between a pension and an annuity?
Typically, the term ‘pension’ is either used to describe a plan used to save for retirement or the income you receive in retirement.
The term annuity refers to a type of insurance policy that provides an income for a specified term or the rest of your life.
Is it worth buying a pension annuity?
An annuity will pay you a guaranteed income for a fixed term specified at the outset or for the rest of your life. When you buy an annuity, you exchange some or all of your pension savings for a regular guaranteed income. There are two downsides to the guarantee an annuity gives you:
- It’s inflexible. If your financial circumstances change in the future, you can’t increase or reduce your pension.
- Annuity rates are very low relative to inflation. When you buy an annuity, you effectively lock into the current rate.
What happens to the annuity after death?
When you die, your annuity payments will typically stop, and the pension fund you used to buy your annuity will be lost. You can add optional benefits to your annuity, such as a guaranteed payment period (in years) or a spousal pension (a proportion of your regular annuity payment). These options would ensure your spouse could still receive your annuity income after you die, but you must choose these options at the outset as they can’t be added later.
What are the pros and cons of a pension annuity?
Pros
- You don’t take any investment risk. Your income is guaranteed for life.
- You can draw up to 25% of your pension pot as a tax-free cash lump sum, then use the balance to buy an annuity.
- Even if the insurance company you buy your annuity from goes bust, the Financial Services Compensation Scheme will fully cover your annuity income.
Cons
- You pay income tax on your annuity income.
- There’s no flexibility. Once you’ve bought your annuity, it can’t be changed, even if your circumstances change, e.g., you find that you don’t need as much income or that you need more income than your annuity pays
- Once you’ve bought an annuity, you only have a short period to change your mind (usually 30 days). After this, you’re locked in.
- Your annuity dies with you (unless you’ve bought a guarantee or spousal pension). You can’t leave your annuity to your kids.
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Planning
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