When you retire, or continue to work but decide to begin drawing your pension, you have the chance to purchase an annual pension called an annuity. Call us today on
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Annuities are essentially a financial product provided by insurance companies that allow people to exchange a lump sum of money for a regular income. While anyone can technically buy an annuity, the first time most people do so is when they are about to retire.
More often than not, annuities are purchased using a pension fund. After years spent paying into your pension pot, you’ll need to convert it into something that will offer a guaranteed income. The most common type of annuity purchased with a pension fund is the Compulsory Purchase Annuity. With this product, you are paid a monthly income that is guaranteed for the rest of your life.
The income you receive from an annuity depends on how much you put in and your life expectancy. Annuity rates are usually quoted as a figure you’ll receive per £10,000 or £100,000 you put in. So, if you’re quoted, for example, £200 for every £10,000 you put in, this would mean you will receive £200 every month for every £10000 you pay in as a lump sum. So £20,000 (at this rate) would see to it that you have a monthly income of £400 per month, and so on.
Advantages of an Annuity
The main advantage of an annuity is that it provides you with an income that is often guaranteed for the rest of your life. This means that you will never have to worry about not having an income during your retirement.
When you reach retirement age and can no longer work, an annuity can be the main source of income for you.
Another benefit is that there are so many different types of annuity out there, that you often have a range of options according to what best suits your needs.
Disadvantages of an Annuity
Annuities are such that once you’ve paid your lump sum in, you won’t be able to get it back. Of course, this means that if a retiree dies soon after they have paid in a big lump sum, the money they get back might not be close to the amount they paid in. This, however, is the nature of annuities and the potential of earning a guaranteed income for the rest of your life often outweighs this risk.
Getting the Best Annuity Rates
You don’t have to settle for the rates quoted to you by your pension provider. You are entitled to shop around and find the best rates! And if you’re a smoker or have certain pre-existing health conditions, you could even qualify for higher rates through an Enhanced Rates Annuity