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What is an annuity?

If you’re paying into your own pension pot, you will probably have to buy an annuity when you retire.

An annuity is a product that converts the money you’ve saved up in your pension pot into a monthly or yearly retirement income for you to live on.

When you buy an annuity you normally only have one opportunity to make the right decision. Once it’s done, you can’t change your mind, so it’s important you get it right.

An annuity pays an income when you retire, and it’s designed to continue providing an income, no matter how long you live for.

The amount you will get depends on things like how old you are: the younger you are when you retire, the less you get each year, whether you want your annuity to pay an income to your spouse or partner when you die.

You’ll get a lower amount while you’re alive if you do.

And, most importantly, if you’re ill or you have a medical condition, such as high blood pressure or if you smoke – which can damage your health you could get a higher income through what’s called an enhanced annuity. That’s because you may not be expected to live as long as someone who is healthy.

You don’t have to buy an annuity the moment you retire, although many people do because they need a retirement income straight away.

To find out how much you could get, you should shop around using our annuity tables to compare what’s on offer.

Think about talking to a financial adviser about the best type of annuity and which company will pay you the highest income.

Find out more on our website.

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