Enjoying your retirement in a way that gives you the financial freedom to do the things you want largely depends on your pension plan. It takes years of hard work to build up your pension, and it's for this reason that you may worry about keeping it safe. We have all heard horror stories in the news, from pension scams to companies going bust to the banking crisis. Another big concern is running out of money. This is why an increasing number of people choose an annuity.
What is an annuity?
An annuity provides you with a regular, guaranteed income for life, and it can be tailored to your individual needs. You can pay into it in a lump sum or over time, allowing you to receive regular income straight away or in the future.
Different types of annuity
Lifetime annuity
As the name suggests this type of annuity will guarantee you an income for the rest of your life and is not linked to any investments. There is no risk and it's ideal if you’re worried about your money running out. Whatever you are planning for your future you will be able to budget for it. A good option is to purchase an annuity that is index-linked, so it will increase each year to meet rises in inflation.
Fixed-term annuity
This guarantees you an income for a set period which is typically between 1-40 years. Your provider will invest the money you pay into your annuity, at the end of the agreed term you will receive what is known as a maturity amount. This is calculated by the amount you pay plus any growth in investments, less any funds you have taken out. This is also a good way to leave something to loved ones if you die before the term of your annuity ends.
Enhanced annuity
Also known as impaired life annuity, this will allow you to prepare for your future exceedingly well if you suffer from certain health conditions or have an occupation that reduces your life expectancy. You will be required to provide medical information about your condition, and in return, you can arrange a higher retirement income to ensure the right level of financial security for your future.
Investment annuity
The advantage of this type of annuity is that it is not purely based on investments. Part of your income will be guaranteed and the rest of it invested. This means you can have the best of both worlds, and you could increase your income significantly if your investments perform well while receiving a minimum guaranteed amount if things go not so well.
Purchased life annuity
This form of annuity allows you to use a tax-free lump sum to buy an annuity or you can create this type of annuity with money that is not in your pension pot. This guarantees you an income for life so you can reduce the time you spend worrying about the financial aspects of your retirement.
FSCS – Financial Services Compensation Scheme
The good news is that your future is protected by the FSCS which protects pensions that are defined as long-term insurance contracts such as annuities. There is no limit to compensation levels, unlike other forms of pension protection. However, whichever option you choose it’s imperative that you speak with your provider to know in detail exactly where you stand.
Are you looking forward to a secure and comfortable retirement? Get in touch with our friendly team to discuss your options.