Advantages Of Annuities

Annuities are effectively investments that guarantee to pay you a secure regular income for the rest of your life. There are many advantages to buying annuities for your retirement income.

Annuities

In the UK, there are basically two different types of annuities; a pension annuity (which is compulsory purchase) and a purchased life annuity (which is voluntary purchase).

Advantages of annuities

• Annuities are simple and easy to understand.
• You can choose a guaranteed fixed income that can be paid for a selected period of time, even if you die.
• You can choose an income that can increase every year if you require.
• You’ll receive an income for the rest of your life, no matter how long you live.
• The size of pension fund needed to buy an annuity is generally much lower than for some other plans.
• You can take a tax-free cash lump sum when you set up the annuity (typically up to 25% of the fund value).
• You don’t need to review an annuity on an ongoing basis.
• There isn’t any ongoing investment risk as you aren’t subject to any stockmarket fluctuations.

Disadvantages of annuities

• Annuities can be inflexible. Once you purchase an annuity, you can’t normally alter its terms.
• You can’t generally pass an annuity on to your beneficiaries as a lump sum when you die.
• The income you receive from an annuity depends on annuity rates, which are currently thought to be very low.
• If you want to provide an income for your spouse or partner on your death you must set this up at outset.
• You won’t benefit from any ongoing investment growth or stockmarket rises.

Pension annuity

A pension annuity is one of the oldest financial contracts around and its origins can be traced way back to Roman times, when policies called ‘annua’ promised to pay an income for a fixed period, or possibly even for life.

Annuities were actually available in the Middle Ages, the most famous of which were called ‘tontines’. These policies paid an income for life, and every year the payouts for those who died prematurely were spread amongst the survivors. 

The last surviving policyholder got to receive the remaining capital. Thus they combined the concept of an insurance policy with an element of gambling. During the 1700′s, several governments including those in England and Holland sold annuity contracts in lieu of government bonds.

In the 19th century annuities were utilised to provide a regular income for elderly relatives or employees. Today they play an extremely important part in retirement planning, with the pension annuity market worth billions of pounds and growing year on year.

To obtain your free, no obligation annuity quotes you can enquire online, or call us free on 0800 0124 374. One quick free phone call from you can make all the difference. We’re here Monday to Friday, 9 am to 6 pm.