What is an annuity?
An annuity is a product where you pay a lump sum into it (typically your private pension fund), and in exchange for that, it provides you with a regular monthly income.
- Know your rights - if your pension provider recommends an annuity for you, don't be afraid to challenge their recommendation, you're within your rights (OMO - open market option) to shop for one yourself if you can find one that offers better rates
When you pay into a private pension and eventually retire, you are able to take up to 25% from the pot of money saved as a tax free lump sum, typically the rest of the pot is invested into an annuity. Each person that takes out an annuity gets their own annuity rate, this is determined by factors such as how much money you've saved in your pension so far, the area you live in, the provider you choose and even your health.
Annuity providers use these factors to determine how long you're likely to live, and then grant an annuity rate that they feel is fair and realistic. If you're unsure which type of annuity you need (there are several), we've put together a guide to help explain the different types.
What should I consider when picking an annuity?
There are several different factors to take into consideration when you're deciding which annuity to pick.
- Firstly, decide if you're going to take up to 25% of the pension pot as a lump sum, once you've decided this, you'll know how much money you have to invest
- Your pension provider is likely to offer you an annuity, but it's a good idea to shop around and compare to make sure you get the best return on your investment as it's what you'll be living off for the rest of your life
- Ahead of your retirement date, have a look at the different types of annuities available to see which suits your needs either as an individual or a couple. If you want your partner to carry on receiving a pension after you die, it could be worth considering a joint lifetime annuity (the guide linked above explains more about this)
Maximise your retirement income
When thinking about retiring it's important to shop around to get the best level of retirement income available. It's possible to increase your income in retirement by up to 40% depending on your medical situation.
Our annuities specialists will:
- Take you through your choices in retirement
- Help you learn about annuities
- Help you compare providers' rates
Once you've chosen, we manage the entire process on your behalf, ensuring you receive your retirement income hassle free. Compare annuities to weigh up your options.
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