Annuities

The benefits of an annuity

• You won’t need to worry about running out of money or monitoring the performance of your investments.
• You can be secure in the knowledge that your income will be paid throughout your life regardless of how long you live.
• There are a range of options you can include to provide benefits on your death or to protect your income against inflation.
• If you’re in poor health, or lead a lifestyle that could shorten your life expectancy, you could receive a higher income.

The risks associated with an annuity

• Once you’ve bought an annuity, it’s an irreversible decision. You can’t cash it in later or transfer to another company.
• You can’t vary the income you receive if your circumstances change.
• When you die your income will usually stop and nothing will be paid to your family or estate.
• You can choose to inflation proof your income, but if you don’t the money you receive on a regular basis is likely to buy less in the future.
• Over the course of your retirement, you may receive a smaller income than if you had chosen an investment based product, such as a drawdown.

What happens when you die

When you die your payments will stop, but you can add options to protect your loved ones. The main options are:

•  Value protection. This provides a lump sum to a beneficiary or your estate when you die. The amount paid depends on how much of the annuity you choose to protect and how much annuity income has already been paid.
• Guarantee period. If you die during the guarantee period, your annuity income will continue to be paid to a chosen beneficiary for the rest of that period.
•  Joint income (also known as a dependant’s pension). You can choose for part or all of your income to continue to be paid to a named dependant after your death, such as your spouse, civil partner or another dependant.

If you add value protection, a guarantee period or a dependant’s pension and die before age 75, any value protection lump sum will usually be paid to your beneficiaries free of income tax. Income paid under a guarantee period or dependant’s pension will also normally be paid free of income tax.

From 6 April 2027, value protection lump sums and guarantee period income will be subject to inheritance tax.

How to find the best annuity deal

You don’t have to accept the offer your pension provider sends you. You have the right to shop around to find the insurance company that will offer you the highest income.

HUB Financial Solutions, one of the companies in our group, can help you make sense of your options and recommend the most suitable solution for you. You can contact them on 01737 233413, Monday to Friday 9am to 8pm.