MORE ON ANNUITIES

When you are dealing with pensions, it is important that you understand the concept of an annuity. An annuity refers to the income you are paid from your pension – as opposed to the Tax Free Cash. You buy an annuity like any other commodity. There is an open market where you can seek out the best deal. The older you are, the more you will get for your money. This is simple to understand. If you are aged 55 and want an annuity, the pension providers will look at the statistics and see that you are probably going to live another 30 years or more. If you come to the provider with the same amount of money and you are 65, you will get a higher income because they can see statistically they are only likely to have to pay it out for 20 years. So £50,000 would buy a man aged 55 an income of £2960 per annum, and a man age 65 £3400 per annum. Once you purchase the annuity, you cannot change it in the future. If this does not suit your circumstances, investigate the other pension options available.

There are a few bells and whistles to know about when considering annuities. First, you can opt to have an income that would still be paid to your wife if you go before she does. Secondly, you can opt to have an income that starts lower but increases each year to counter the effects of inflation. And thirdly, if you are in poor health or have a difficult medical history, you should look at Enhanced Annuities. Basically these give people with medical problems more for their money – on the basis that they are not going to live as long as someone who is of the same age but in good health.