Pension Annuity: 3 steps to make sure you buy the right Pension Annuity

Today, there are two main choices if you have a defined contribution pension, Pension Drawdown or Pension Annuity, but what are the differences?

Pension Drawdown is a flexible way of taking your money when you need it and keeping the rest of your money invested. Drawdown is an excellent way of accessing your funds, as keeping your pension pot invested, means it could continue to grow and deliver more money for your retirement. There is also the risk of it losing money, like the financial dip we have experienced with Covid-19 and the results of the stock market. Another downfall with Pension Drawdown is the fact that the responsibility for maintaining your funds rests with you, and you will need to ensure you manage your withdrawals correctly, making sure your funds last your retirement.

For people looking for more security, peace of mind and a regular income from their pension pot, then buying a Pension Annuity could be the answer. With an annuity, you are using part or all of your pension pot to buy an insurance policy that will deliver a guaranteed income for a set number of years or cover the rest of your life. By having the regular income, it can be easier to plan your retirement and ensure your outgoings are covered. The downfall with an Annuity is that it is not flexible, and if you need more money at a certain point, i.e. medical bills, car, or housing repairs you cannot ask for more income for a set period.

When looking to buy a Pension Annuity, our three steps below will need careful consideration to ensure you buy the right product for you.

Three Steps to Buying an Annuity.

Step 1. Check your finances

The first step before you buy an annuity should be a check on your finances and pension pot value. To find out the value of your funds, either check your recent pension statement or contact your current providers to get an up to date valuation. Next, check on any other investments you may have like an ISA or Stocks and Shares investments that could provide you with income in retirement. Lastly, work out what your monthly outgoings, including household bills, average food bill, entertainment etc. By keeping a track on your expenditure and potential income will help to figure out how much income you could need and for your annuity to provide.

Step 2. Decide on what type of annuity you need

There are several types of pension annuity you can purchase to give you the retirement income you desire. Are you looking for income through a set period or for your lifetime, do you need the annuity to pay out a lump sum or regular income after you pass away? Are you looking to protect your income in-line with inflation? Do you have any health issues? These questions are vital in understanding what type of annuity is best for you. Getting the wrong product now could affect the rest of your life and the comfort of your retirement.

Step 3. Search the market for the best product.

Start by speaking with your current pension provider to see what annuity they can offer. Once you have that benchmark, searching the market and shopping around could highlight a better and more suitable product for you. There are many annuity providers and products available, all offering different options and income offers, so you could end up getting a much better deal for your money than going direct with your pension provider.

Speaking with an expert.

Buying an annuity is an important decision. If the above three steps sound like a lot of work, speaking to one of our financial advisers can make this process much more straightforward and stress-free. An annuity is an irreversible decision, and once you have purchased the product, you cannot change your mind and get your money back.

By speaking to our advisers, they can work through the process. They can find the best product for you, and give expert advice to make the right decision. Your adviser will also highlight your options and the best way to take income from your pension pot. This could be using all of your funds for an annuity, part annuity and part drawdown option or a fully flexible drawdown plan.

For more information on pension annuity, click here or call our team on 0161 413 7051 today.

Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s independent financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

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