Annuities are designed to offer you a secure, agreed
level of income for the rest of your life. Some annuities give you
more income if you’ve had a medical condition or you smoke; others
could pay an income to your partner, if you die first. There are many
different types, and you don’t have to buy your annuity from the same
company that provided your pension.
Currently, at retirement everyone can choose
to take up to 25% of their total pension savings as a tax-free lump
sum. The Lifetime Allowance, currently at £1 million (2016/17 tax year),
is the amount you are allowed to build up in pension benefits during
your lifetime, without incurring a tax charge.
After you’ve taken any lump sum though, it’s
the rest of your retirement fund that provides an income for you when
you retire. Therefore, you need to think about what taking the cash
amount would do to your income as the more you take as a lump sum, the
less you’ll have left to buy an annuity.
But it’s very
important to get annuity advice from an expert financial adviser
because it’s a one-off purchase - you can’t change your mind after
you’ve bought an annuity and there are other options available for you
to invest your retirement money such as pension income drawdown.