Annuities
If you’ve saved into a defined contribution pension scheme throughout your working life, you will have to decide what to do with your pension fund when you retire. One option is to buy an annuity or a lifetime annuity. An annuity is a way to turn some or all of your pension pot into a guaranteed income for life. It can be a way to ensure financial stability in retirement.
You can also buy an annuity with your savings or investments.
You don’t have to purchase an annuity, it’s just an option. If you have been a member of a defined contribution scheme there are other ways to organise your pension pot. You can set up a drawdown scheme, for example, or consider a combination of the two.
Annuities
If you’ve saved into a defined contribution pension scheme throughout your working life, you will have to decide what to do with your pension fund when you retire. One option is to buy an annuity or a lifetime annuity. An annuity is a way to turn some or all of your pension pot into a guaranteed income for life. It can be a way to ensure financial stability in retirement.
You can also buy an annuity with your savings or investments.
You don’t have to purchase an annuity, it’s just an option. If you have been a member of a defined contribution scheme there are other ways to organise your pension pot. You can set up a drawdown scheme, for example, or consider a combination of the two.
Different types of annuities
Level annuities: These pay out the same income every year. Level annuities have higher starting incomes than escalating annuities however they are vulnerable to inflation. This could mean your annuity income is worth less over time. Even low inflationary levels can reduce your standard of living quite considerably.
Escalating annuities: These rise every year at a fixed rate. They may pay out less than a level annuity but the amount you are paid will increase at a fixed rate each year.
Inflation-linked annuities: These annuities rise each year in line with the retail price index. This protects the annuity from inflation, but you will generally be paid at a lower rate to start off with. You will have to consider whether this suits your circumstances, for example your health, and for how long you need an annuity for.
Impaired or enhanced annuities: These pay more income if you are expecting your lifespan to be shortened by ill health or due to your lifestyle e.g. smoking. If this is the case you may be eligible for income rates that are considerably higher than with other annuities.
Lifetime annuities: These pay you income for the rest of your life unlike fixed term or short term annuities. Lifetime annuities represent a great way to get financial security in retirement, however you may have to live a long time to get value for money.
How to buy an annuity?
You don’t have to buy an annuity from your pension provider, in fact it’s recommended that you should shop around. It can be extremely challenging, however, to buy the right one for your circumstances. Kingsmarque can talk you through your options, and help you find the annuity that’s most suitable for you. We can compare quotes from across the entire market, taking into account any lifestyle or health conditions you have.
Nowadays you can access your pension pot at 55 and you exchange the entire fund for an annuity, however you can only take 25% of your pot tax free and remember that income from an annuity is taxed. It’s important to start thinking about what you plan to do with your pension pot early, 10 years or more in advance, to decide if an annuity strategy is right for you.
Remember an annuity is a financial product that’s designed to last you a lifetime and once you’ve bought it you can’t change your mind or trade it in.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) could go down as well as up, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.
How to buy an annuity?
You don’t have to buy an annuity from your pension provider, in fact it’s recommended that you should shop around. It can be extremely challenging, however, to buy the right one for your circumstances. Kingsmarque can talk you through your options, and help you find the annuity that’s most suitable for you. We can compare quotes from across the entire market, taking into account any lifestyle or health conditions you have.
Nowadays you can access your pension pot at 55 and you exchange the entire fund for an annuity, however you can only take 25% of your pot tax free and remember that income from an annuity is taxed. It’s important to start thinking about what you plan to do with your pension pot early, 10 years or more in advance, to decide if an annuity strategy is right for you.
Remember an annuity is a financial product that’s designed to last you a lifetime and once you’ve bought it you can’t change your mind or trade it in.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) could go down as well as up, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.
Asad was very knowledgeable and explained how he could help with the various aspects of my finances.
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He was able to answer questions I asked regarding my pension and advised me what I should do next.
Asad was super helpful and intuitive. He provided lots of options and tailored solutions, which was exactly what we wanted.
