Pension Annuities

Pension annuities give you an income for life, in exchange for a lump sum payment. The lump sum usually comes from your pension fund, and you will pay income tax on the income that you receive.

If you have a pension plan, eventually you'll want to use it to create income to help you achieve a good standard of living after you retire. But you do not have to take your income from the company that holds your pension fund. You can instead transfer the pension fund elsewhere, to try to get a higher income from it. This is usually called an Open Market Option.

The income that you get from an insurance company in exchange for your pension fund can vary considerably between companies. How competitive their rates are will depend on just how keen they are to get more annuity business at the time. It usually pays to shop around for the best annuity rate.

It is also possible to use money that you have saved outside of a pension scheme to buy an annuity. In this case, only part of the income that you receive is taxed.

There are many decisions to be made when you take an annuity:

  • Should the income increase each year?

  • By how much should your pension increase?

  • Should it continue for a surviving spouse or partner if you die?

  • If so, how much should continue?

  • Do you want your pension income to be guaranteed?

  • Are you prepared to take some risk in the hope of higher income?

  • Do you want to be sure that the amount paid out in income will total at least the amount paid in, even if you die soon after taking the annuity?

  • Is a higher income available from a specialist annuity provider, perhaps because you are a smoker or you are in poor health?


    • These are some of the more important decisions that need to be made.

    And remember that an annuity isn't always the most suitable way to use your pension fund. If you are in serious ill-health, for instance, you may prefer to try to preserve as much of your pension fund as possible, so that it can be used for a dependent after you die.

    For more information and advice on annuities, contact us.