Annuities – get bad press, but they can still be a vital part of your plan
An annuity is bought with your pension savings. After withdrawing 25% of your pension plan as a tax-free Pension Commencement Lump Sum, the 75% balance is then used to buy a guaranteed income (that is taxable as income) paid for the rest of your life – short or long. That’s the gamble. Annuities can include any number of the following options, which have to be selected at the start:
- The income continuing to your spouse if you die first. The income will continue at either the same rate, or reduced to two thirds or half.
- Increases in payment to offset inflation – either fixed increases or linked to RPI
- You may prefer your annuity to pay a higher income at outset, but remain level in payment.
- A guarantee period ( 5 years or more)
- Capital protection which ensures that your annuity will provide a minimum return.
- Fixed term annuities can be purchased which will pay for a fixed time period only.
We will help explain the options
The B&C Financial Planning team will help explain the options to you. In addition, we will often request completion of a health form to make sure you benefit from any available enhancement to the annuity rates based on your health or lifestyle factors (e.g. smoking). Our service searches the whole of the market to get the highest annuity available.
Key point: An annuity will give you certainty of income throughout your life, but may prove poor value on early death and has limited/no flexibility for changing circumstances.