Can I still buy an annuity to fund retirement income?
The simple answer is yes, you can still buy an annuity to give you a regular income for life. Radical pension ‘freedom and choice’ reforms now mean that over 55s don’t have to, though. Now you’ve a choice.
It’s still possible to use pension savings to ‘buy’ an income that lasts for life and doesn’t run out. It’s called an ‘annuity’. It comes in different shapes and sizes depending on a person’s individual circumstances. But what’s common to all is regular income for life. Click here to find out more.
The big advantage of annuities is that they pay a guaranteed income for the rest of your life – irrespective of how long you live. With life expectancy rising it could mean that your annuity pays out for longer.
If you’ve more than one pension, you can combine your pension savings to buy one single annuity. This is likely to give you a higher income than several individual ones.
You can also take up to 25% of your pension money as a tax-free lump sum and use the other 75% to buy an annuity.
The key disadvantage of annuities though is that that are inflexible. Once you set up an annuity, that’s it. It cannot be undone. So, think long and hard before you decide.
Alternatively, if you’re over 55, you can opt for income drawdown. This involves leaving your pension money invested but drawing an income whenever you need it.
The disadvantages are that if you withdraw and spend all your money too soon, you could live the rest of your life in poverty, and not be entitled to certain means-tested benefits. You’ll also pay income tax on any money you withdraw and you could be in danger of going into a higher tax bracket if you drawdown too much.
Not every pension can be drawn down as income. State pensions, private sector final salary pensions and unfunded public sector pensions (including NHS, civil service, teachers, armed forces, fire service and police) cannot be drawn as lump sums. And remember, a pension scheme is an investment, so if the market underperforms, your pension’s value could fall with it.
Interested in an annuity?
We don’t provide annuities, so we recommend you shop around. There are online comparison sites to help you find the annuity that best suits your circumstances. Or speak to your financial adviser. If you don't have one, visit unbiased.co.uk to find an adviser in your area.