Joslin Rhodes

08:13, Thu 18th March 2010

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Annuity Options

When the time comes for you to convert your pension fund into an income there are several choices available. Traditionally you achieve a monthly income by using some or your entire fund to purchase an annuity. Annuities cannot be changed once they have been purchased so it is important to ensure that the correct choices are made.

The options are;

  • Tax Free Cash lump sum - You may take up to 25% of your fund as a tax-free cash lump sum to use for any purpose although you must use at least 75% of your fund to purchase an annuity. Obviously the less tax free cash that you take, the greater amount available for your annuity and therefore the greater income achieved.
  • Impaired Life Annuities - If you suffer from ill health then it may be possible to receive an enhanced annuity that will pay a greater income that would be achieved by someone in good health.
  • Smoker Rates - Smokers can also receive an enhanced annuity over that achieved by a non smoker.
  • Spouse’s pension - Annuities will continue paying throughout your lifetime however you may wish for your spouse or other dependent to receive an income after your death. This is achieved by selecting a spouses or dependents annuity, although selecting this option will reduce the amount of income paid during the life of the annuity.