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Buying a pension annuity can help to provide you with a regular income for a set period of time or the rest of your life after retirement. But what is a pension annuity and how does it work?

In this article, we answer a number of questions about this type of pension - including “what is an annuity based pension?” and “what is a guaranteed pension annuity?” to help you better understand how this particular approach to retirement finances may work for you. So: what is a guaranteed pension annuity, and how might you benefit from buying one?

What is a Pension Annuity?

A pension annuity is basically an insurance product that will pay you a regular income, potentially for the rest of your life. You can purchase an annuity using all or part of your retirement fund, to give you regular, fixed income for the duration of your annuity.

Pension annuity rates vary from provider to provider, the amount you have saved, your life expectancy and your specific arrangement. You can potentially get more for your annuity if you shop around or speak with the advisers at Hilltop, who can find you the best rates for your annuity. If you have any medical or lifestyle concerns that could affect your life expectancy, you may be eligible for an enhanced annuity, that will give you a larger regular payout.

So – do all pensions offer annuities? The answer is no – pensions come in a variety of forms and the “pot” into which they are paid is built up over years of saving. Pensions can normally only be accessed after 55 years of age.

What is a Guaranteed Pension Annuity?

Now we have looked at what pension annuity is, it’s time to uncover the question ‘what is a guaranteed pension annuity?’. This form of annuity ensures that you receive a set, amount that is paid to you for the rest of your life or over a period of time i.e. 20 years after it is purchased, even if you die before the end of the term. Once you have purchased the Guaranteed Annuity, it is irreversible and cannot be cashed in.

Not only does this allow you to budget with more certainty, but it also provides you with a sense of comfort and peace of mind that comes with knowing the precise percentage of your saved funds you will receive with each payment. Although an annuity doesn’t offer any flexibility once you have purchased your policy, and you cannot normally change the regular income you will receive. Pension Drawdown offers that flexibility and a combination of Annuity and Drawdown might be more suitable for some people.

What Annuity Will My Pension Buy?

The annuities that can be purchased using all or a percentage of your pension pot include a basic lifetime annuity, enhanced annuity or an investment-linked annuity. 

While the former of the three allows you to arrange a fixed amount to be paid to you as income, the latter enables you to continue to grow your funds by investing but still to continue receiving your fixed income. To avoid any risk, there should always be a minimum payment guaranteed.

It is common practice for retirees to withdraw 25% of their pension before using the rest to purchase an annuity – as this initial quarter is available tax-free.

Can I Cash in My Annuity Pension?

It is unlikely that you will be able to “cash in” your annuity pension – that is, to close down your annuity arrangement and take the remainder as cash. However, in certain circumstances, there may be a possibility that your annuity provider will cancel your arrangement speaking with the provider may help you to decide your options. 

An annuity purchase in most circumstances is a one-time purchase and cannot be cancelled or changed.

What Happens to My Pension Annuity When I Die?

If you arrange a death-benefit provision alongside your annuity pension, you can name a beneficiary to receive the remainder following your death.

You can choose for this individual to receive a guaranteed minimum payment or to take control of all remaining funds that are due to be paid, whatever the amount.

Best Annuity Plan for Retirement

There is a range of annuity options and rates available to choose from depending on your preferences and budget.

Because of the number of possibilities and the potential complexities of some of the matters involved, it is best to speak to an expert financial advisor before making any decisions regarding a pension annuity.

An established and experienced specialist can talk you through all the finer points of your arrangement – including tax rates for your annuity payments, enhanced annuity, guaranteed minimum payments and the difference between basic lifetime and investment-linked annuities.

They will also guide you through the process of naming a beneficiary of any death-benefit provision.

A guaranteed pension annuity can help you be financially secure throughout your retirement and provide a fixed, reliable income for the rest of your life. For efficient, unbiased and client-focused pension advice – including information and guidance on pension annuities, get in touch with the specialists at Hilltop Finance today. Our financial advisors will be more than happy to discuss your options with you.