Questions & answers
What is an annuity?
It is an arrangement where the capital value of your pension fund, less
any tax-free cash, is paid to an insurance company, which in return, will
pay a set level of income to you for your lifetime (this is a conventional
annuity). There are other types of annuity available (see "Annuity Types").
When do I have to buy an annuity?
Depending on your retirement age, you can purchase your annuity from age 50
to age 75. At age 75 you now have either the option to buy an annuity or to
take out alternatively secured pension (ASP).
Are there any alternatives to buying an annuity immediately?
Yes – your pension fund can remain invested until you decide to buy your
annuity.
Alternatively, you could choose from one of the following:
- Phased Retirement
- Unsecured Income
- Flexible annuity – e.g. 5 Year Rolling Annuity (see "Alternatives").
What reason would I have for choosing one of the above
options?
It could be that the rate of income being offered by insurance companies
on annuities may be particularly low at the time and you would prefer to wait
(the rate of income may rise in the future, although equally, it could fall).
Alternatively, one of these options may better suit your personal financial
scenario at the time. (See "Alternatives").
Why are there different types of annuity?
Because some people may wish to have an element of investment built into
their annuity in case they can achieve a better return. However, there is
no guarantee with investments, which could cause your income to fall as well
as rise. This is why many people opt for a conventional annuity, as there
is no element of investment – and therefore no uncertainty. However,
investment annuities have the potential to protect your standard of living
throughout your retirement.
When can I obtain my tax free cash – and how much will it be?
You normally get up to 25% of the non-protected rights fund from your
pension fund. Currently, the earliest age that you can take tax free cash
is at 50.
Is it possible to change my annuity later on?
No, you can only buy your annuity once. When you have purchased your annuity,
you are stuck with it till death although you can in some instances switch
out of a with-profits annuity into a conventional one.
