Annuity

An Annuity is a contract that will pay you a guaranteed, regular pension income for life, it is a financial product designed to swap a lump sum amount for guaranteed periodic cash flow (e.g., monthly or annual payments). The income that you receive will be subject to income tax and Universal Social Charge (USC).

Annuities may be more suited for people who wish to avoid potential market fluctuation risks and would prefer a more secure fixed guaranteed income in their retirement.

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

Single Life or Joint Life (Spouses or registered civil partner Annuity)

A Single Life Annuity is payable for the rest of your life only. With a Joint Life Annuity, a percentage of your pension (chosen at outset) is payable to your spouse or registered civil partner for the remainder of their lifetime after you die.

Guaranteed Period

If you choose to include a guaranteed period, your full pension will be payable for a minimum of the remaining guaranteed period, even if you die during that time. (Usually 5 years from outset)

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 plus USC.
No Flexibility: Once an annuity is purchased, the income is fixed and cannot be altered, meaning you lose access to the lump sum invested.

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