Competitive rates from across the annuity market
In terms of pensions, an annuity is an exchange of money, usually after you have taken any tax-free cash, for a regular income. This income can be taken in a variety of ways which we will explain below.
Until recently, the only option available for most people at retirement after taking any tax-free lump sum entitlement, was to purchase an annuity with their pension fund. This changed in the 2014 budget after George Osborne the then Chancellor announced that no one would be obliged to buy an annuity with their money purchase pension fund.
In recent years annuities have lost much of their popularity in part because of the pension freedoms introduced by George Osborne but also significantly annuity rates i.e. the potential pension you exchange your fund for, have fallen considerably, in other words you get less bang for your buck
An annuity however does provide a guarantee as once purchased the agreed level of income is guaranteed whereas left in the pension fund can potentially fall as well as rise.
It is important to make the right choice as once purchased you may not be able change your decision If you buy a poor rate or simply the one offered by your pension provider you are locked into that rate for the rest of your life.
An important point to take away therefore is do not simply accept the annuity offered to you by your current pension provider as this could seriously damage your wealth in your golden years.
An annuity in addition to providing a lifetime oncome for the annuitant
- Can be purchased with a guaranteed pay out usually 5 or 10 years
- Can be escalated each year for example in line with the Retail Prices Index
- Written on a joint life basis for example with your spouse.
- Be paid annually, quarterly or monthly
- Paid in advance or arrears
- Is taxed as income
With numerous options available including whether an annuity or using part of your pension fund to purchase an annuity plan for retirement is the right choice, it is important that all options are fully considered, and that advice is taken so as to achieve your desired outcome.
At Bennison Brown we specialise in At Retirement financial advice and offer Whole of Market access to the annuity market making sure that you benefit from competitive rates from across the annuity market.