Is a pension annuity right for me? 

Author: Nicola Peak

Chartered Financial Planner & Chartered Wealth Manager

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When you retire, one of the most important decisions you will need to make is how to secure enough income to live out the rest of your life in comfort.

One option is to convert the pension pot you’ve built up into a regular income. You can do this by buying what is called an ‘annuity.’

An annuity is a contract issued by an insurance company that converts a lump sum into a guaranteed income stream. This is usually an income for life but could also be for a fixed period, with a guaranteed amount returned at the end of the period.

You are able to purchase an annuity, from your pension fund, at any time after you reach 55.  This can be an ideal way of bridging the gap between retiring and receiving the State Pension.

Over recent years, annuities have fallen in popularity due to the low rates on offer, driven by low inflation and low interest rates. However, as we move into an era of higher inflation and higher interest rates, annuity rates have increased significantly over the last nine months.

For example, £100,000 in November 2016 could buy a guaranteed income of £4,696 per annum for life, whereas in November 2022, this would have provided £7,608 per annum.

Annuity providers may take into consideration any health conditions you have, and can offer you a higher income level, known as an Enhanced Annuity.

You can tailor your annuity to suit your needs e.g., an income for just you or providing your spouse with a guaranteed income after your death.

Annuities are just one of a number of options for retirement income planning, and advice should be sought in what can be a complex area.

If you are already drawing an income from your pension or looking to retire, please speak to Nicola Peak on 01223 233331 to establish if an annuity is the right option for you.

Opinions constitute our judgment as of this date and are subject to change without warning.  The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

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