(From April 2015, the rules involving annuities and income drawdown changed. Rather than having to purchase an annuity, pension savers can, if they wish, withdraw as much as they wish from their pension pots. In total, 25% of the pension pot can be taken free of tax; the balance being subject to income tax. Although this change may make annuities less attractive for some, many still prefer the security of knowing they have a guaranteed and secure income for life.)
What is an annuity?
An annuity is a contract between an insurance company and a pension scheme member, where the member uses some or all of their pension savings to purchase a regular and guaranteed income for the rest of his or her life or for a predetermined number of years.
The factors that determine the amount of income you can expect to receive include (but are not limited to) your age, state of health, your postcode, prevailing annuity rates, the type of annuity you buy and the size of your pension fund.
What are the advantages of an annuity?
- A regular and secure income for life
- Can be tailored to meet specific individual needs and circumstances
What are the disadvantages?
- Falling annuity rates would reduce the level of income that you could obtain in exchange for your pension fund at the time when you come to retire.
- Payments cease on death (unless you purchase an annuity which continues to pay income after you have passed away)
Depending on your circumstances and requirements, some annuities may be more suitable for you than others. We are here to assist and to ensure that you purchase the annuity that best 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.
A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
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 IN THE FUTURE.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.
HIGH INCOME WITHDRAWALS MAY NOT BE SUSTAINABLE.
TAKING WITHDRAWALS MAY ERODE THE CAPITAL VALUE OF THE FUND, ESPECIALLY IF INVESTMENT RETURNS ARE POOR AND A HIGH LEVEL OF INCOME IS BEING TAKEN. THIS COULD RESULT IN A LOWER INCOME IF AN ANNUITY IS EVENTUALLY PURCHASED.
ANNUITY RATES MAY BE AT A WORSE LEVEL IF AN ANNUITY PURCHASE TAKES PLACE.
