Annuities convert your pension savings into an income.
Since April 2015, you can withdraw as much of the money you want to that you've saved into your pension, once you reach 55.
Be careful, any annuity purchased by pension funds or drawdown income will be taxed as income.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
How do Annuities Work?
An annuity is a financial product that enables you to convert your pension savings into a monthly or yearly retirement income for you to live on.
The amount you will get depends on factors such as how old you are; the younger you are when you retire, the less you get each year, whether you want your annuity to pay an income to your spouse or partner when you die.
It's worth thinking about talking to a financial adviser about the best type of annuity and which company will pay you the highest income.
Open Market Option
If you have a pension fund, you should be told that as an alternative to buying an annuity from the company you have saved with, you have the option to take the fund to another company and buy it from them.
From April 2015 people have been able to access their Defined Contribution (DC) pensions as they choose from the point of retirement and not to purchase an annuity.
Annuity providers will be allowed to vary the amount of income they pay. You may wish to take less to begin with and larger sums later on. New rules will allow you to take a lump sum from an annuity, provided you agree to this when you buy one.
Your family may be allowed to be paid from your pension after you die if you include a guarantee period. Guaranteed annuities pay out to your beneficiaries after you die, but usually this only lasts for 10 years after you bought the annuity.
Different Types of Annuity
There are many different types of Annuity.
The main types of annuity include:
- Lifetime or Fixed Term
- Single Life or Joint Life
- Fixed Income, Escalating Income or Investment-Linked Income