An annuity is just one of the many options available to people who are approaching retirement. Annuities were compulsory up until April 2015, when the Government announced greater freedom on how you can use the funds in your pension pot. This move was welcomed as annuities, while secure, did not provide attractive returns. However, it’s important to know that annuities are not all the same. If you’re looking for a secure, guaranteed income, there are several types of annuities to choose from.
Pension Annuity
The most common form of annuity, the funds come directly from your pension scheme to purchase your annuity as one lump sum.
Life annuity
This type of annuity is funded by your personal savings. Sometimes known as Purchased Life Annuities (PLAs), they work in a similar way to Pension Annuities, except that the taxation of payments is treated differently.
Temporary annuity
Similar to the life annuity in the way it is funded and taxed, the payments for a temporary annuity will continue for a specified time period. The payments stop if the annuitant dies within that time period.
Deferred annuity
This type of annuity has a savings period where regular payments are made over an agreed period, after which the payments from the annuity start. Some types of deferred annuity will allow a conversion into a lump sum, which is then used to purchase another annuity.
Immediate needs annuity
Often used for people who have a shorter life expectancy or who require specialized care, Immediate Needs annuities can be funded either from a pension scheme or personal savings. They can be bought with one person’s funds to provide income for a third party so that the income can go directly to that person’s care provider, for example. Additional information, such as medical history, will be required.
Planning your retirement income can be a headache, and there’s little scope to backtrack if you’ve made the wrong decision. The Government’s Pension Wise is a free service that helps you understand all your options, but full financial advice is not within their scope. With dedicated software for financial advisors produced by specialists such as https://www.intelliflo.com/financial-adviser-software, a professional financial advisor can gain a complete understanding of your financial needs.
From there, your financial advisor can recommend and help you settle on the best retirement planning options for you.
