Retirement: 6 reasons why you should still consider an Annuity


6 reasons why you should still consider an Annuity 150pxAsk 100 pensioners if they want a guaranteed income in retirement and we’d suggest most would say “yes”. But ask the same people whether they would like to buy an Annuity and many will say “no”.

It’s fair to say that the term ‘Annuity’ has become somewhat toxic over the past few months; which is unfortunate as for many people it is still the best way to turn their pension pot into an income.

Even if you don’t think an Annuity is the right option you, it should at least be considered before you rule it out.

So, here are six reasons why an Annuity might be right for you:

1. A guaranteed income for life

An Annuity is never going to be the most exciting of financial products, but sometimes boring is good.

Although inflation will eat into the buying power of a level Annuity, the type most people buy, the income is nevertheless guaranteed for life, it can never run out, which is possible with other options such as Income Drawdown.

2. Enhance your income

Many Annuity providers will take into account a range of health and lifestyle factors when deciding what Annuity rate to offer you.

If you have a serious illness, which is likely to severely impact on your life expectancy, or indeed you are terminally ill, it is unlikely that an Annuity is the right option.

But for many people, with less serious conditions, an Enhanced Annuity could well be the right option, giving a far higher level of sustainable income than other options.

3. Income for your spouse

If selected when the Annuity is bought, a spouse’s pension (which can also be left to a civil partner or financial dependent) can ensure that your partner receives a guaranteed income for the rest of their life if you should die before they do.

4. The best of both worlds: Cover your essential spending and retain flexibility

Prior to ‘Pensions Freedom’ most pensioners chose to use either an Annuity or an Income Drawdown arrangement when they reached retirement.

However, we believe we’ll see more blended solutions in the future, with part of a pension pot used to buy an Annuity, which along with the State Pension, then covers essential spending.

The remaining pension fund is then placed into an Income Drawdown arrangement, with the pensioner retaining the flexibility to alter the amount they withdraw based on the level of their discretionary expenditure.

5. Annuity v buy to let

There is growing concern that ‘Pensions Freedom’, combined with the toxification of Annuities, will lead to some people choosing to take large lump sums from their pension pot to invest in buy to let property.

For most people this will be a mistake.

Not only have we previously proved that an Annuity provides a higher income that buy to let, an article which can be read by clicking here, there are many other reasons why raiding your pension to invest in buy to let is a bad idea:

  • Tax the lump amount withdrawn above the 25% tax-free lump sum
  • Concentration of risk in one type of investment
  • Income stability
  • Liquidity

Learn more by clicking here.

6. A simple choice

One problem with an Annuity is once it has been bought, it can never be changed, but on the flip side it is a relatively simple solution.

Your income is guaranteed to arrive each month, no matter what happens to the stock market and isn’t reliant on a tenant paying their rent on time.

We’re here to help

Clearly an Annuity isn’t right for everyone; no option is, which is why it’s vital you get as much good information and advice as possible when you retire,

If you are worried about selecting the right option when you retire our team of Independent Financial Advisers are here to help you.

Call us on 0115 933 8433 or email for a initial chat to learn more about how we can help you.