An annuity is a way of converting a lump sum, usually a pension fund, into an income for the rest of your life, a guaranteed regular income until you die. Unlike other investments, an annuity cannot be used up – however long you live.

Types of Annuity

  1. Level – pays the same income each year for the rest of your life. The main drawback with a level annuity is what you can buy with the income falls through inflation. Level annuities pay a higher starting income compared to increasing annuities.
  2. Increasing – these increase each year. There are two main choices. A) escalating annuities – guaranteed to increase each year, normally 3% or 5% or B) RPI linked annuities – these are adjusted each year to reflect changes in the retail prices index.
  3. Investment linked – these are where your money is invested and income you receive is determined be investment performance instead of a fixed annuity rate. This type of annuity will give you a chance of a higher income but involves extra risk.

The amount of income an annuity will pay depends on:

  1. The amount of money you have in your pension fund
  2. Your age, sex and your health at outset / or
  3. The benefit options that you choose e.g. if the annuity is for just you for both you and your partner.

The income that you get at the start of an annuity is higher the older you are because the companies are assuming that you wont live as long.

Your options

  1. Single life Annuity – If you don’t have a spouse or partner or they have their own pension provision
    Joint life Annuity – This will pay out to your spouse or partner after your death.
  2. You can also guarantee whichever annuity you choose for a specific period, usually 5 or 10 years. This means that your annuity provider will continue to pay the annuity income to your heirs if you die before the guarantee period expires.

Pros & Cons of an Annuity

Pros

  • Lower risk than any other retirement option
  • You will receive an income for the rest of your life
  • You can choose to provide for your spouse or dependants
  • You can protect your income from inflation
  • If you die early your income could be paid back to your estate

Cons

  • You can’t cash it in, swap it or alter it
  • Fixed Income
  • If you die early you may not get all the money back – there are options to prevent this
  • The options you choose affect the level of income you receive

Drawdown

An alternative to an annuity. The money from your pension remains invested, but you can take some of the money at regular intervals to pay for your retirement. The amounts that you can withdraw are limited by the government so that you do not run out of funds.

The Third Way?

Following the two options of Annuity or Drawdown, a “third way” is evolving which gives a mixture of some benefits from both annuities and drawdown.

The Living Time contract gives a fixed income for a fixed period of time and a fixed fund at the end of this period to choose again the best option at that time.

The flexibility given is particularly useful in that clients do not have to commit to indexation, a spouses annuity or death benefits at the outset for the life of an annuity.

About Us

Our Annuity service is a fast and easy way to select the best Annuity provider for you.

It is very unlikely that your existing pension provider will offer you the best annuity rates in the market. Under your open market option you can choose the best annuity rate available at that time.

Why use Simply Annuities UK?