Home

Must I buy an Annuity?

The answer is NO but not that simple. Your options may be dictated by the size of the pension fund that you hold;

• If all of your pension rights do not exceed £18,000 then you could take cash the pension in as a lump sum; 25% is tax free and the remainder is treated as income - see Triviality
• You may choose to take an income directly from you pension fund - see Drawdown

An annuity cannot normally be purchased before age 55 and it used to be the case that an annuity had to be purchased by age 75 – no longer the case. Where a pension fund is not used to purchase an annuity (e.g. it is gifted to a beneficiary on death), whether that be for a dependant or the annuitant, and death ocurrs from age 75 onwards then there is a tax charge of 55%.

Most people choose to buy an annuity when they reach their retirement age, although due to annuity rates being historically low at this time it is not uncommon to defer an annuity purchase – see our cost of delay calculator to see how this may affect your income.

If you decide to buy an annuity, shop around! Most pension plans have an open market option which allows you to purchase an annuity from any annuity provider and obtain the best annuity rate.

Do I Need an Annuity?

Annuities are not the only option available to retirees looking to convert their pension to retirement income. If your pension fund is large enough (c£100k+ or you have good levels of income from other sources) then income drawdown may be an attractive option. Income Drawdown allows an income to be taken directly from a pension and defer purchasing an annuity. Drawdown is not right for everyone, there are risks. We have developed an income drawdown calculator to demonstrate the amount of income that is available and the effect on a pension fund allowing for various growth rates. Income drawdown is specialist subject for which we strongly recommend advice.

Another alternative to conventional annuities are fixed term annuities. These annuities end after a specific period giving a pre-agreed lump sum with which to purchase another fixed term annuity or a conventional annuity. This type of annuity may suit a person that has experienced ill health that may deteriorate further and lead to higher impaired life annuity in the future

Where to get the Best Annuity Rates

Your pension provider will usually allow you to convert your pension to an annuity but it’s unlikely to be the best annuity rate. Fortunately, most pensions have an Open Market Option which allows an annuity to be purchased from another annuity provider. There are about a dozen or so annuity providers and shopping around them all to determine the best annuity rate is very time consuming, our live annuity quotes service will speed this up for you.

While the annuity companies subscribing to our quotes service consistently appear in annuity best buy tables there are some companies that are not included. The best way to get annuity quotes from all annuity providers is to contact a financial adviser. A financial adviser will also be able to help you with the many annuity options available and discuss alternatives. Importantly, if you have suffered ill health then no annuity quote service will be able to provide accurate annuity quotes without fairly detailed medical information – in this case you should complete and return the Common Quotation Form to obtain annuity rates from companies offering impaired and enhanced life annuities.