Annuity

An annuity is a financial product that provides guaranteed income for a set period or for life, typically purchased with pension savings at retirement. With an Annuity you will receive a regular income for the rest of your life. Annuities may be more suited for people who wish to avoid potential risks and would prefer a guaranteed income for their retirement.

There are three choices you need to make when purchasing an Annuity:

Single Life or Joint Life

A Single Life Annuity is payable for the rest of your life only. With a Joint Life Annuity, a percentage of your pension is payable to your spouse after you die.

Guaranteed Period

If you choose to include a guaranteed period, your pension will be payable for a minimum of the guaranteed period, even if you die during that time.

Escalating or Level

A Level Annuity means your payments remain the same throughout your life. An Escalating Annuity means your payments increase at a fixed rate each year.

Key Features

Guaranteed Income: An annuity provides a fixed income, which can be paid monthly, quarterly, or annually, depending on the terms.
Types: There are several types of annuities, such as lifetime annuities (income for life), fixed-term annuities (income for a set period), and inflation-linked annuities (income increases with inflation).
Pension Fund Conversion: At retirement, a portion of your pension fund is used to purchase an annuity, which then guarantees regular payments for the chosen period.
Taxation: Annuity payments are subject to income tax at the individual’s marginal tax rate.
No Flexibility: Once an annuity is purchased, the income is fixed and cannot be altered, meaning you lose access to the lump sum invested.

Conclusion
An annuity provides a predictable and guaranteed income for retirement, making it ideal for those seeking financial stability in retirement, but it comes with the trade-off of reduced flexibility in accessing funds.