An annuity is a type of insurance policy that provides a guaranteed income for life when you retire in exchange for a lump sum.
When you reach retirement age you will need to convert the capital that has built up in your personal pension policy for an annuity plan, which will provide you with regular income for the rest of your life.
Where do I buy an annuity?
You can buy your annuity from a number of providers and doesn’t have to be with the company you had your pension plan with.
The amount of income you receive depends on the size of the pension fund and the annuity rate. Annuity rates vary between providers and due to a sharp fall in annuity rates in the past few years, it is important you shop around for the best rates.
How to build up an annuity?
Anyone that has a pension and has built up a capital must buy an annuity by the time they are 75, unless they are part of a final salary scheme.
However instead of converting all your capital into an annuity you can take up to 25% as a tax free lump sum.
Other important factors to consider include, whether you want your income to stay the same throughout or have an automatic annual increase built in and whether you want all or part of the annuity to revert to your partner or civil partner in the event of your death.
For full details of considerations speak to our advisor who will be able to talk you through the process.