What is an Annuity

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Annuity, Your Pension Fund Option in Letterkenny, Donegal

When you get to retirement age, one of the options you will be offered for your pension fund is to purchase an Annuity.

What is An Annuity? The term “annuity” means a series of pension payments, normally monthly until a particular event occurs. These are normally purchased from a life company using your pension fund. In effect you buy a guaranteed income for life.

You should think about taking advice when considering your retirement options, especially when you are buying an annuity. It is important to shop around for the best Annuity as not the companies do offer different options.

A Guaranteed Income in Retirement | Advice First Financial

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If you are a member of a defined benefit scheme, you may never have to make a decision about buying an annuity as the trustees will pay your pension directly or buy an annuity on your behalf.

But for other pension arrangements, the purchase of an annuity may be one of the most important financial transactions in your life – certainly, it is one with very long-term consequences. Once arranged it can’t be changed.

Therefore, it is important to understand how annuities work and the various options that may be available to you.

Many pension arrangements allow an “open market option”. This means that you may have a choice of going to any life assurance company regardless of where the pension fund itself was invested.

Know that this is important as some providers of annuities are more expensive than others from time to time.
Always seek advice

How does it work?

After you have taken your retirement tax-free lump sum you may be able to choose between an Annuity and/or an Approved Retirement Fund.

An Annuity is designed to provide you with a regular and guaranteed income for the rest of your life.

Moreover, it is important to choose an annuity that reflects your needs and those of your spouse nad or family in retirement. Thus, seeking financial advice before you make a decision is important.

Why chose an Annuity?

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

There are different advantages to taking out an Annuity and/or an Approved Retirement Fund (ARF).

Our ‘Post Retirement Guide’ will help you understand the difference between these products. However, if you are unsure of the option that best suits you, call our Financial Planning Team at 074 910 3938 and we will guide you through the process.

Types of Annuity

There are a number of choices you need to make when purchasing An annuity:
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.
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.
A Level Annuity means payment of the Annuity remains the same throughout your life and an Escalating Annuity means payment of the Annuity increases at a fixed rate each year.

It is vital that you seek advice on the above to ensure you choose the best option for your individual circumstances.

Help is at hand

No one starts out knowing exactly what they’ll need for their retirement years or what taxes and charges they will incur. With so many different plans and options available, we all need some help making the decision that’s right for us.

Thankfully, you’re not alone. From pension calculators to financial advisors, there’s plenty of help available.

Use this ARF or Annuity tool from Zurich to see which option might be more suitable for you at retirement.

There’s no right or wrong answer as to which option is better – just which one is better for you (based on the information you provide).

Tools to help you choose

Use the ARF or Annuity tool to see which option might be more suitable for you in your retirement years. There’s no right or wrong answer as to which option is better – just which one is better for you. Use this Retirement Drawdown Calculator to look at the different options available in retirement. It compares the benefits of investing in an Approved Retirement Fund (ARF) with those of an Annuity.

Advantages

  • You get a guaranteed, regular income for life, so you know exactly where you stand.
  • You can choose an Annuity type that best suits your needs, such as one that gives a part-pension to your dependants after you die
  • Once you invest in an Annuity, you will not need any more investment advice in relation to it, it is a one-and-done arrangement.
  • You don’t need to worry about investment risk as your income is guaranteed

Disadvantages

  • Once you take the pension, your income level is fixed or indexed* to an agreed amount per year and can’t be changed afterward.
  • If you choose a level pension or one that does not increase each year, inflation** will reduce its value during your retirement.
  • The annuity rate is fixed the day that you buy the annuity, so you won’t benefit from any later increase in annuity rates
  • If you die early and your annuity income is just for your own lifetime, the money you used to buy the annuity does not go to your dependents – basically, your annuity dies with you.
*Indexed or indexation, increases the amount payable on your Annuity automatically every year to make allowances for inflation. 
**Inflation, The risk that your money will lose value over time. Your buying power goes down as prices increase. You need to earn more than the inflation rate to get a real return on your money.

Remember you or the trustees of your employer pension scheme, can shop around for an annuity and you might be able to get a better annuity rate.
Always seek independent advice before making any decisions of this nature.

Warning: Past performance is not a reliable guide to future performance.
Warning: Benefits may be affected by changes in currency exchange rates.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in these products you may lose some or all of the money you invest.

If you have questions or need advice

Why not give us a call, we will be happy to assess your existing arrangements and or discuss your retirement goals.

Call us today in Letterkenny: 074 910 3938

Get Advice

Talk to us now and make an appointment with one of our Letterkenny team of Advisors. We are here to help with your Financial Planning Concerns. Ask us questions on Retirement & Pension, Life Insurance & Protection, Mortgages, and Investment Advice. Get in touch here or give us a call at 074 91 03938.

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