Probably a dull subject (but a worthy one)? It probably is dull unless you are actually facing retirement. However, unless you have been left a sizeable legacy or marry an ageing billionaire, a pension annuity is a key way to get financial security in old age.
An annuity is guaranteed source of income for the rest of your life (or possibly in some cases for a fixed period). On reaching retirement age, most people have a lump sum pension fund, and it needs to be used to buy annuity (retirement income).
However, If you die early you won’t have enjoyed the full fruits of your pension pot and the annuity it buys. Instead you will be lining the pockets of the insurer who sold the annuity, because the remainder of the fund on your death reverts to them. Of course, if you live to a ripe old age, you will probably be mightily relieved the insurer is footing the bill.
You must use your pension fund to buy a pension annuity by the age of 75. You can take up to 25% of the money tax-free as a lump sum, but the rest must be invested in the pension annuity. Some critics argue that retirees should be given the freedom to choose what to do with their own cash.
So there it is, an annuity is a vehicle that provides your retirement income, and, as you have to have one (or a similar type of contract) make sure you get the right one with the best annuity rates.
