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 £1.8 million (this limit may change in the future), 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 independent financial adviser (IFA) 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.