Best Annuity Purchase & Advice
When you retire, you are entitled to withdraw up to 25% of your pension fund free of tax. The remainder is used to provide you with a regular retirement income, and the most popular way to do this is by purchasing a pension annuity.
Annuities are simply an investment that pays out a regular income from the savings you built up over years of paying into your pension fund. While the company which managed your pension fund is obviously best placed to offer you information about their own range of pension annuities, you are by no means obliged to buy your annuity from them.
This freedom to ‘shop around’ is known as your ‘open market option’.
There are a number of types of pension annuity, offering a wide range of pension annuity rates, and so it is worth shopping around. In this, asking a good financial adviser to identify the best annuity will be a wise decision, as you will be tied in to your chosen annuity for the rest of your life.
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Types of Pension Annuities
The first decision when shopping for an annuity is to identify the beneficiaries of your pension. Do you wish to pay the pension only to yourself, or to your spouse and children as well?
This decision will enable you to choose one of the two types of Guaranteed Annuity, the ‘single life’ and the ‘joint life’ models
A Single Life Annuity pays out only to you, and ends upon your death.
If supporting a family is a primary consideration, however, then a Joint Life Annuity will continue to pay out after your death, supporting your spouse until they die, or paying to your children for an agreed term. Some companies will not offer you joint pensions annuity rates if your partner is ten years or more younger than you.
If you are a smoker, or have health problems, you may be well advised to purchase an Enhanced Pension Annuity, which pays out at a higher rate on the assumption that you are not expected to live as long as a healthy person of your age. It can be well worth informing your financial adviser about any health issues you have – in some cases this can increase your retirement income by 100%!
For those who wish to grow their pension savings further, a With-Profits Pension Annuity may be the right choice. This model invests your savings, so that your retirement income is related to the performance of these investments – and may fluctuate accordingly. Many prefer the comfort of knowing how much will come in from their pension each month, and therefore this option is not for them. However, some with-profits payments reduce the risk of fluctuation by offering a guaranteed minimum payment.
Pension annuities are not only for converting your pension savings, however. If you have savings separate from your pension fund, whether it be from an investment or from the sale of property, these can also be turned into a regular income by purchasing an Immediate Life Annuity.
