Independent Financial Adviser in Colchester, Essex - Woodruff Financial Planning
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Pension Annuity

What is a pension annuity?

A pension annuity is the product that you will need to use to purchase your income in retirement. When you save money into a pension plan you accumulate a fund which must be used to buy you an income for your retirement. This is called a pension annuity. You may also choose to take part of your fund as tax free cash when you retire. This will reduce the amount available for the pension annuity, and so reduce the income in you retirement.

The idea behind a pension annuity is that you use the lump sum accumulated in your pension fund, and give this to an insurance company to invest for you. The insurance company will then use this lump sum and provide you with an income for life. This is your pension annuity.

An important consideration when you come to purchase your pension annuity is that you do not have to buy this income from the company the invested your money in a pension. You are able to shop around for the best rates available to you using what is known as the open market option. We can help you with this by gathering quotes from all the pension annuity providers.

The income from a pension annuity will generally be guaranteed for life by the company that provides it. The main drawback however is that once you have invested your pension fund, you cannot get this back. If you were to die shortly after taking out the pension annuity, your estate would lose this money. There will be different rates of income available depending on your age, fund size, sex, and the different options that you may select for your pension annuity.

Some typical options available for a pension annuity:

  • Guaranteed for 5 or 10 years. This means that your dependants could continue to receive an income from the pension annuity even if you die during this period
  • Increasing by a level amount or by inflation. This is designed to ensure that your income keeps its value in real terms
  • A spouse's pension. This provides a proportion of your income for your spouse even after you die

The downside to these extras is that they all take away from the initial income from the pension annuity - to have the option costs after all.

Income on a pension annuity is taxable.

There are many types of pension annuity. For example, if you have a serious medical condition you may be entitled to more income due to your shortened life expectancy. This is called an impaired life annuity. If you have a less serious condition, or you smoke, you could obtain more income with an enhanced annuity.

Otherwise, you may even wish to take a more risky approach and introduce an element of investment into your pension annuity, in the hope of generating more income for your retirement.

Click here to see our leaflets on pension annuities.

As you can see, the options available to you with a pension annuity are widespread, and complex. It pays to get proper advice. Why not contact us if you have an important decision to make in this area?

 

 


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--- Pensions --- What is a pension? --- Personal Pension --- Stakeholder Pensions --- What we will do --- Pension Quotes --- Tax free cash --- Tax relief --- Retirement annuity plan --- Company pension scheme --- Group personal pension --- Options at retirement --- Pension annuity --- Open Market Option --- Income Drawdown --- Phased Retirement --- Money Purchase scheme --- Final Salary Scheme --- EPP --- SIPP --- SSAS --- Pensions and divorce ---
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Dan Woodruff, trading as Woodruff Financial Planning, is an Independent Financial Adviser with Julian Harris Financial Consultants who are Independent Financial Advisers authorised and regulated by the Financial Services Authority No. 153566.
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