Welcome to the final part of our Income in Retirement Series. Our final post provides details of another method of taking income in retirement. Although this method has reduced in popularity since the introduction of Pension Flexibility Rules in 2015, they still remain a popular option for individuals to receive income in retirement.

What is a Pension Annuity?

A pension annuity involves exchanging your pension pot for a 25% tax free lump sum followed by a guaranteed income for the rest of your life. The income can be set up as a fixed income for life, or the income can be set to increase or decrease over time. This can be useful as an annuity which increases over time can protect your income against inflation. Annuities can also be set up on a single or joint life basis. A single life annuity will cease upon death whereas a joint life annuity taken out between spouses will pay out until the surviving partner passes.

It is also possible to purchase an impaired or enhanced annuity. These annuities have a higher rate than other annuities due to a shorter life expectancy due to lifestyle factors (such as being a smoker) or serious medical conditions and will pay a higher annual income.

Whilst a guaranteed income may sound appealing, there are a number of advantages and disadvantages that should be considered before making any decision.

As an annuity cannot be changed once set up, it is imperative that all factors are considered before making your final decision. Our expert financial advisers can assist you and give specific recommendations based on your own personal circumstances and objectives and ensure that you make the choice best suited to you and your family.

Advantages

·        25% tax free lump sum is payable at the start of the annuity

·        A regular set income for the rest of your life

·        If an increasing annuity is chosen, your income will keep pace with inflation

·        A joint life annuity can provide a set income for both of your lives

Disadvantages

·        Once an annuity has been set up it cannot be changed

·        All income from an annuity is taxable at your marginal rate (after the 25% tax free cash)

·        The tax free lump sum must be taken in full at the start of the plan

·        The pension funds will be depleted entirely and cannot be left to your loved ones after your death

If you wish to explore your options in retirement, please feel free to get in touch. Our local, friendly team of Independent Financial Advisers will be happy to provide advice and suitable recommendations tailored specifically for you.



Give us a call on 01788 571122 and we will be more than happy to help

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. It does not constitute advice. All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor. 

PJL Financial Services Limited are authorised and regulated by the Financial Conduct Authority. 

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