Your annuity
options
Making the right choice – information you need to be aware of
There’s lots to think about when deciding whether an annuity (a guaranteed income for life) is right for you.
Below we’ve included some information you should read and consider when making your decision.
More detailed information can be found in the Pre-Retirement Report.
Product
A lifetime annuity is set up on a fixed contract basis; you will know in advance the income payments you will receive and their frequency. Buying a lifetime annuity is a one-off purchase and once completed your income will not reduce if annuity rates go down.
You will also not benefit if annuity rates were to increase in the future. You can’t change the shape of your annuity, and you can't cash the annuity in once it has been set up.
Tax-free lump sum
You can usually take up to 25% of the amount built up in any defined contribution pension as a tax-free lump sum.
The bigger the tax-free lump sum you take, the less you have to buy a guaranteed income for life (annuity).
Protecting against inflation
If you select an escalating annuity, the effects of inflation are offset up to a known percentage each year.
If the annuity is in payment for a lengthy period, the total income payments may exceed those of a non-escalating annuity (level annuity).
Your initial income will be lower than that of a level annuity, and it may take many years before the total amount accumulated from an escalating annuity exceeds that from a non-escalating annuity.
Guarantee period
If you select a guarantee period, you can have peace of mind that in the event of your death, your annuity income will be protected for a selected period after you set it up.
The guarantee only applies for a fixed limited period. Your annuity income will be lower if you choose to add a guarantee period.
Providing for a spouse or dependant
If you choose a spouse’s or dependant's pension they will be provided for after your death, receiving a percentage of your annuity income for the rest of their lifetime.
Your annuity income will be lower than that of a single life annuity (no spouse/dependant provision) as the potential payment term also depends on the life expectancy of your spouse.