What is an annuity?

An annuity is a contract between an insurance company and a pension scheme member in which an insurance company provides a regular income in exchange for a lump sum.

The amount that you are paid as part of your regular income is dependent on the insurer's estimation of how long you will live, the annuity rates, and the amount of your pension fund.

In the 2014 Budget it was announced that, with effect from April 2015, the rules involving annuities and income drawdown will change, with the result that pensioners will have the freedom to access all the funds in their pension pots, 25% of which will continue to be free of tax and the remaining funds will be subject to normal income tax rules. This means that from April 2015, pensioners will have complete flexibility to withdraw as much or as little of their pension as they want, at any time. While this increase in flexibility may mean annuities will be less attractive for some, many will still have the requirement for a guaranteed lifetime income.

What are the advantages?

  • Provision of a regular income upon retirement
  • Choice of annuities available to suit your needs - Joint life annuities available
  • Income paid at intervals to meet your needs

The advantages and benefits will depend upon the type of annuity you select. We are here to assist and to ensure that you get the one that most suits meets your needs and circumstances.

What are the disadvantages?

  • Falling annuity rates could reduce the amount that you receive from your pension
  • Not very flexible, and unless you have selected a flexible scheme, you could be tied to the policy
  • Payments cease on death unless you have selected a spouse pension or guarantee.

The disadvantages will also depend upon the type of annuity you select. We are here to assist and to ensure that you get the one that most suits your needs and circumstances.

Important note

If you do decide to buy an annuity upon retirement, you should ensure that you check policies, rates, restrictions, and benefits very carefully, and if necessary seek advice from a financial adviser. Investing in the wrong annuity scheme could cost you a great deal in annual income, so make sure that you look into this subject carefully before you make any commitment.