A pension annuity is an income provided in return for your pension fund. It is usually the remaining fund after the tax-free cash has been withdrawn, and is taxed in full as earned income. Pension annuities provide a guaranteed income for life, which is an attractive option for many; however, it does mean that there is no possibility of benefitting from future growth. In addition, unless you write in certain guarantees, you will not be able to pass any of the value down to your heirs. This means that if you die earlier than expected, the vast majority of the fund will be lost. Purchasing a pension annuity is certainly not the right option for everyone, and it is something that should be given careful consideration. At Maxim Wealth Management Ltd, our advisers will help you weigh up your options to see if a pension annuity is the right choice for you. Contact our team for your consultation.
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What type of annuity should you buy?
You are not obliged to buy your annuity directly from your current pension provider. An “open market option” allows you to take your retirement fund to a different provider, where you could get a better annuity rate or more attractive guarantees. At Maxim Wealth Management Ltd we can compare the entire market to help you select the annuity that is best for you. We base our pension annuity advice on the following criteria:
- Do you want a single life or joint life annuity?
If you have a single life annuity, the income you receive will stop if you die before your partner. Joint life annuities will help provide for your partner, but the income will be lower.
- Would you like to protect your annuity income against inflation?
Protecting your annuity against the rates of inflation will cost you more in the short-term, but can give more peace of mind in the long run.
- Would you like a guarantee period?
A guarantee period ensures that the income will be paid for a set period, even if you die earlier – meaning that your heirs will get some benefit.
- Could you accept some investment risk?
Investment linked annuities invest your money into stocks and shares, on the basis that investment growth could offer the potential for higher income payments in the future without the need for you to buy inflation protection.
- Do you want to buy from more than one annuity provider?
Diversification is always key, and spreading your annuity over a number of providers could mitigate risk and make other choices easier. For example, you could inflation-proof just part of your income or put just a small amount into a joint life annuity if you need to provide for a dependent.
- Do you qualify for an enhanced annuity?
If you are suffering from a life-shortening condition, such as heart disease or cancer, you can get an enhanced or impaired life annuity. Generally this means a higher income, based in line with reduced life expectancy.
Before making any decisions regarding your pension income, you should always seek professional financial advice. Maxim Wealth Management Ltd offer comprehensive pension annuity advice to help you select the right option for your future.