Annuities Your UK Guide
Basic Facts About UK Annuities
Annuities for People in Poor Health and Smokers
Annuities and the Postode lottery
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Facts
(Click on any of the facts below to read more)
An annuity is a regular income guaranteed for life
You “buy” an annuity with your pension fund
If you have an occupational pension…
If you have a personal pension…
You don’t need to get an annuity immediately you retire
There’s an open market in annuities with daily price changes.
There are various types of annuity
When you buy an annuity you lose your pension fund forever
Annuity Basics
An annuity is a regular income guaranteed for life in exchange for your pension pot – it’s the income pensioners get beyond anything from the state or from a previous employer.
You “buy” an annuity with your pension fund after retirement. Basically you exchange the sum you’ve saved for an annual income. So once you’ve signed, that’s it!
If you have an occupational pension based on your final salary and length of service, you don’t need to to anything – the employer will do it all for you and you have little choice in the matter unless you want to do something very clever (definitely not advised so we won’t discuss it!)
If your workplace pension is “money purchase”, there are no guarantees of your income. So you need to read on, just as if you had a personal pension as your savings (and those of your employer on your behalf) build up in the same way.
If you have a personal pension, as retirement approaches, your pension provider will contact you with an offer of an annuity
This initial offer is highly unlikely to be the best deal you can get so don’t accept it automatically. Read more about this now
You don’t need to get an annuity immediately you retire. You can hold off till you’re 75 – when you have to buy one by law. (This is controversial and seems to be constantly under review by the government and the opposition).
There’s an open market in annuities with daily price changes. You can shop around to make a significant difference to your retirement income, (The latest Best Buy Annuity Tables will show you the variety in prices).
You can buy various types of annuity eg an inflation proof annuity or an annuity that will keep paying your partner after death, and so on. You may also get a larger annuity if you have a serious disease or are a heavy smoker because you are likely to live a shorter life than average. (We’ll go into this further in Types of annuity below).
When you buy an annuity you lose your pension fund forever by swopping it for the agreed regular income. But there are now so-called “third way” annuities which allow you to take an income until you reach 75 and then have a second chance at buying an annuity. Third Way products are specialised and require an IFA’s help.
There’s no going back and your loved ones do not get whatever’s left over when you die. The pension you saved for years is not yours anymore. You “sold” it to the annuity provider.
This is why some people opt not to go for an annuity on retirement but go for an alternative. For example some may opt for an “income draw down”, whereby you can take money directly from your pension fund and buy an annuity later on. You’d need to consult an IFA about the alternatives.
Warning: Under no circumstances should you accept the first annuity you’re offered.
(You’ll see why in Choosing an annuity)
| If you want to get a specific idea of how big an annuity you could get with your pension fund, we can connect you to an IFA who specialises in annuities. They will give you a quick customised quote. |
This is a free service and you’re under no obligation to proceed in any way. Click here.