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ANNUITIES

Annuities.

An Annuity is a form of a retirement income product that is sold by insurance companies, typically either through lifetime annuties or fixed-term annuites. It pays you retirement income for a set period of time or for life. It is helpful to note that when you use money from you pension pot to purchase an annuity you can take up to 25% percent from the pension pot tax free.

It is important that you heavily research the type of annuity that best suits you and your goals as once you choose one it cannot be reversed. Make sure to get advice and help from the insurance company before you fully commit to an annuity.

Lifetime Annuities.

A Lifetime Annuity policy is the most common type of annuity that pays you an income for the rest of your life. A recipient may also be choosen to recieve this income if you are to die. There are two different types of Lifetime Annuities:

Basic Life-time Annuity: This is where you receive income for the rest of your life and you set the income in advance.

Investment Linked-Annuity: This is where you recieve income for the rest of your life which rises and falls in line with that of the performance of the investment.

It is helpful to note that if you have any medical conditions you might be able to recieve a higher income amount by choosing an 'Impaired life' or 'Enhanced' annuity.

Fixed-Term Annuities.

A Fixed-Term Annutiy policy pays you an income for a certain period of time typically anywhere from five to ten years. At the end of this period of time you can buy another annuity or just simpily take the money. With a fixed-term annuity you can choose the income you receive throughout the term as well as the lump sum (maturtiy amount) you recieve at the end. The higher income you choose the lower the maturity amount.

The main risk of choosing a fixed-term annuity is that changes in the market conditions may result in you receiving a lower maturity amount that expected as a result of the annuity rate falling during the the fixed-rate term.

Taxing Annuities .

The total amount of tax you pay on your annuities will mainly depend on the total amount of income you received during the year and the tax rates that are applied. If this amount exceeds £12,000 a year then you will have to pay tax on anything over the £12,000. The tax rates applied on annuities can range anywhere from 20% all the way up to 45%.