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If you have chosen to take part in a pension scheme, you need to think about how you're going to convert that into income when you retire. An annuity is a simple and popular solution.


Annuities explainedattention to detail 2

Previously, it was compulsory to buy an annuity before turning 75. Now, savers can choose other solutions, such as a pension scheme – one of our independent financial advisers can help you weigh up your options.

You can buy an annuity with the initial lump sum from your pension scheme, whether you take all or part of your pot.

It's important to make this decision in the build up to your pension being released. Your pension company will probably offer you an annuity, but you don't have to take it – there are a number of providers competing in the open market.

An annuity is an arrangement between an insurance company and a pension scheme member, where the insurance company provides a yearly income in exchange for a lump sum.

The income is guaranteed at least for the rest of your life – which means the amount you are regularly paid will depend on an estimation of how long you will live by the insurer, as well as current annuity rates and your initial payment.

The advantages and disadvantages of an annuity depend on the type of annuity taken and your specific circumstances, and we can help you make the right decision. There are some common benefits and drawbacks, but not all will be applicable to each circumstance.

Pros and cons of annuities

Some advantages include:foresight

  • A wide range of annuities are available, in order to suit your needs, including joint life annuities;
  • A regular income for as long as you live, in addition to your state pension or any other pension scheme;
  • Income paid at intervals to suit your needs.

Like any other investment, there are also disadvantages:

  • Most annuities are relatively inflexible, meaning you are tied the to the policy for the duration of your retirement;
  • Annuity rates are based on expected life span, which can be affected by factors outside of your control, such as your postcode – a higher life expectancy means a lower annuity (annuities can no longer be affected by your gender, as of 2012);
  • Annuity rates are affected by the economy, which can reduce the amount that you receive from your pension depending on when you buy it;
  • Unless you have selected a spouse pension or guarantee, your annuity payments cease on death, no matter how much or little of your annuity you were paid.

It's important to consider which annuity you buy very carefully, as there are a wealth of policies, rates, restrictions and benefits. As independent financial advisers in Scotland, we can guide you through the minefield and help you find the best solution available to you.

Contact our annuities advisers to arrange an appointmentTimeMgt

While we are based in Glasgow, we are happy to travel to visit clients across Scotland and the rest of the UK. For free initial annuities advice from our experienced financial advisers, contact us on 0141 272 0000 or fill out our online enquiry form.