Annuities Explained Annuity – Why?

Why Bother – Annuities

So you’ve worked hard your whole life and you’ve been contributing diligently to your pension fund, but what happens when you retire? Fortunately there is a simple answer. You buy an Annuity.

What is an Annuity?

Simply put, an annuity is a onetime product you purchase with your pension pot or savings, to guarantee you an income until you die.

Purchased correctly, an annuity will provide you with the financial security to enjoy your retired life.

Compulsory Purchase Annuity – Pension Funds

Generally speaking you will have paid money every month for most of your working life into your very own pension pot. But at the end of your working life what happens to that pot of money? Most people will have the option to withdraw 25% as a tax free cash lump, but what about the remaining 75%?

Current Legislation

While purchasing an annuity used to be compulsory, the requirement was abolished by the government from April 2011. However, many still find an annuity the safest way to secure a regular income for the rest of their life, trading your pension pot for a product that guarantees to pay you a fixed sum annually until you die. Your pension provider will send you an annuity offer but you are free to shop around and buy an annuity anywhere you want. In fact you will almost always find a better deal if you shop around.

There are several different types of annuity product on offer, giving you a vast choice. Those who live unhealthy lifestyles or who are unwell can purchase special annuities at a better rate, as they are seen to have a lower life expectancy.



Purchased Life Annuity

You can also purchase an annuity with savings, referred to as a purchased life annuity, and this is often taxed more favourably than a pension related one.

Why would people not have one?

There are almost no cons to having an annuity and nearly everyone with a pension fund will eventually buy one. People without pension funds would not have one, leaving them living off a state pension. They do, however, have the option to buy one with savings.

Main Advantage

The main advantage of purchasing an annuity is that you guarantee income for the rest of your life, regardless of how long you live. Couples can purchase ‘joint life’ annuities that continue paying even if one half of the couple dies. There is also the option to purchase an annuity that guarantees to pay for a set period, regardless of if you die. These are typically for 5 or 10 years, and whilst offering you a lower rate, you can rest easy that your estate will still receive your payments after you die. If you outlive the guarantee period they will continue to pay until you die.

Some annuities also increase the amount they pay out, either by a fixed amount, say 5%, or in line with the Retail Price Index, effectively negating the effects of inflation on the customer. These again pay a lower initial rate than a fixed annuity, but with people living longer and inflation rising rapidly, these provide further peace of mind for the purchaser.


A guaranteed income for the rest of your life

Security and peace of mind that your future is secure

The only product that guarantees to pay until you die, without risk


Annuities can very rarely be changed once set up, so you must get it right first time.

It is highly recommended to seek the help of an IFA, (Independent Financial Advisor).This does not necessarily have to be as expensive as it sounds and in the long run could increase your income substantially.


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Annuity – Basics

Annuities – the FSA

Annuity – FAQ

Annuity – FAQ cont

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