The Ultimate Guide to Annuities

An annuity is a financial product that guarantees to provide you with an income, either for a specific period or for the rest your life. If you have been saving towards a pension, you can use this in exchange for an annuity.

There are lots of different types of annuity available. It is important to find one that suits both you and your circumstances. Once you’ve bought into an annuity, you can’t switch to another one.

Take a look through the different types of annuity available below.

Lifetime annuity

A lifetime annuity guarantees that you receive an income for the rest of your life. If you are buying the annuity for yourself, you can choose a single lifetime annuity.

Joint lifetime annuity

A joint lifetime annuity will pay all, or part of your income to a partner, or a dependent in the event of your death.

Level annuity

A level annuity will provide you with a specific amount of income for the rest of your life.

Increasing annuity

Differing from the level annuity, the increasing annuity does just that, it increases each year. This is a good option for those who worry about the repercussions of inflation.

Enhanced life annuity

An enhanced life annuity or impaired life annuity will give you a higher income if you have specific health conditions or are considered to be at risk. This is because the provider predicts that you may die sooner.

Investment-linked annuities

This annuity keeps your pension invested in the stock market. You are still provided with an income, but it is subject to the health of the investment. It may rise or fall, but you are able to receive bonuses.

Guaranteed annuities

A guaranteed annuity will only provide you with an income for a certain amount of time. If you were to die during this time, payments can be paid to your survivors, or paid into a lump sum that can be inherited.

There are however, alternatives to buying an annuity. As annuity is no longer mandatory, many are investing in unsecured pensions. A USP enables you to draw an income whilst keeping your pension invested. If you were to pass this sum onto family members, you would have to pay a 55% tax charge.

If you do decide to buy an annuity, there are a variety of factors that will affect it. These can include age, sex, health, life expectancy, and the current annuity rates.

Now that you have a breakdown of all the annuity options available to you, we advise that you get unbiased advice and shop around.

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