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What is an Annuity?
Essentially an annuity is a monthly income that is provided from the pension pot that you have been saving into during your working life.
You usually 'purchase' your annuity when you decide to retireand that will provide you with a guaranteed monthly income for the rest of your life.
It is always advisable to shop around for your annuity and not just take the annuity that your pension company offers. Rates do vary according to your circumstances.
Sometimes it is more appropriate to take a fixed term annuity with all or some of your pension pot. A fixed term annuity is just that - it pays a monthly income for a pre-specified period of time.
The amount of income an annuity will pay will depend on :
- the amount of money in your pension fund
- your age, sex and health
- the type of annuity you choose.
You can delay purchasing your annuity until you decide you need the income, but it does have to be finally purchased by the time you are 75.
According to government estimates, women live longer than men. This means that the starting income for a man from the same size pension fund as a woman, will usually be higher.
The income that you get at the start of an annuity is higher the older you are because the companies are assuming that you won't have as long to live.
Tax free lump sum or Pension Commencement Lump Sum
You can take up to a quarter of your pension fund in cash, as a tax free lump sum. You should ask your pension fund administrator how much you are entitled to.
CLICK HERE for advice from a annuity qualified independent financial adviser to help you decide which type of annuity is for you.