Finance Q&A's
Annuities
An annuity provides guaranteed income for life in retirement, but as an irreversible purchase, it’s vital to make sure it’s the right option for you. Here, Lakeside Technical Specialist, Adam Chambers, talks through main types of annuities available and highlights who is more likely to benefit from such a product.
What is an annuity and who are they available to?
A: An annuity is a product that pays you a guaranteed income for the rest of your life once you retire. The annuity usually covers essential living costs and bills, while people have other pension funds they draw from for luxuries such as holidays. From the age of 55, you can choose to buy an annuity using savings in a bank account or money from your pension pot. However, they are generally better suited to those at a later stage in life as the younger you purchase one, the lower the income you receive. If you are older or have health issues, the payments you receive are likely to be higher as your life expectancy determines how much an insurance company will pay.
Can you give an overview of the main types available?
A: The two main types are lifetime and fixed term annuities. As it sounds, a lifetime annuity offers a set rate for life and will keep paying you a regular, guaranteed amount until the day you die. Money within a fixed term annuity allows flexibility to move between providers at the end of each term to seek different interest rates which could result in you receiving higher payments.
Are there any other pros and cons to be aware of?
A: Annuities have fallen out of favour in recent years partly due to the low rates on offer, but they can still offer better value than merely leaving money sat in a bank account. Above all, it’s a secured and regular income for the rest of your life. The disadvantages being that there is little flexibility, so if you lock into an annuity at a low rate, you lose out every year for the rest of your life. Also, when you die, an annuity stops paying out, so there is nothing passed onto the beneficiaries of your estate.
How can you help clients wanting to explore this retirement income option?
A: When putting retirement plans in place for our clients, we look at their individual circumstances and what they want to achieve to get them the best value on their money and meet their wishes overall. Generally speaking, the more money you have, the less you need an annuity as it’s about proving income security and budgeting your funds. For those wanting to explore this option, we can talk them through the different types of annuities in more details, the options available and compare providers to find them the best rates.
Please feel free to contact us for further information: admin@lakesidefs.co.uk
