Annuities
An annuity is an arrangement that guarantees to provide you with a regular income for the rest of your life in return for a lump sum investment.
Barclays Wealth can help you purchase the right annuity. This is critical, because once you’ve set it up, it can’t be changed.
Maximising your annuity
The amount of income you receive from your annuity depends on:
- The lump sum you use to purchase the annuity
- Your age when you purchase
- Your gender
- Annuity rates when you purchase
- The type of annuity
- The options you choose
There are ways you can obtain a higher rate than the standard amount offered by your provider. For example, you can transfer your pension fund to a company offering better returns by exercising your open market option before you draw any benefits.
If you or your partner are suffering from a serious medical condition, you may be able to purchase an impaired annuity. This gives you a better annuity rate, as your retirement may not last as long.
Purchasing annuities
- Before purchasing an annuity, you can take 25% of your pension fund tax-free. Annuity income is taxed at your highest marginal rate.
- You no longer have to purchase an annuity at age 75. But if you don’t, you’re required to use your pension savings to create an alternatively secured pension by the time you reach 75.
Types of annuities
Compulsory purchase annuities: These apply when you belong to a defined contribution occupational pension scheme or hold a personal pension plan and are obliged to use your pension fund to purchase an annuity.
Purchase life annuities: You can buy this type of annuity at any time with your own funds. These are not pension-based, although they can be used to provide a retirement income. They are taxed differently to pension annuities.
Annuity options
Level annuity: Pays a fixed annual income for life
Escalating annuity: Pays an increasing annual income linked to retail prices or a fixed percentage
Single life annuity: Ceases when the policy holder dies.
Joint annuity: Continues to pay an income to a named dependant when the policy holder dies. This can be two-thirds or half the original income.
