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Annuities explained simply

The finer details

Annuities provide you with a guaranteed income for the rest of your life, but you do not have to stop working to take your benefits.

Until recently, this was the ‘default option’ for people retiring. Many choose an annuity to provide their income in retirement as it pays a guaranteed income. The income is paid for as long as you live, rather than a set number of years and there is no investment risk (unless you have requested an asset backed annuity).

An annuity can also provide an income for your partner or dependent if you die first, via a Spouses. It can even protect your income against the effects of inflation (Escalation), as even a low level of inflation could greatly reduce your spending power over the years. You can choose the frequency of your payments and decide whether you require any Guarantee period in the event of your death.


However, you have to consider that with an annuity, you can not change it once it is set up. If the annuity is set up on your life only it will stop on your death and is therefore not suitable for everyone. If you select a ‘dependent’ they cannot be altered later.

Annuity rates

The amount of your annuity will depend on the annuity rates applicable at the time of your retirement. The annuity you will receive will be specific to you and will depend on various factors such as life expectancy, fixed interest bond yields, how much you are investing, your age, your postcode and your health.

With this in mind, it’s seriously worth shopping around. Studies show that the rates on offer from different annuity providers can vary as much as 11%* for a healthy annuity and 33%* for enhanced annuity.

To put that in to context, if the top company was prepared to pay you £5000.00 each year, the bottom company may only offer £3350. Think what a difference that £1650 could make to you!

Annuities and tax

Annuity payments are treated as an earned income. As such, they are taxed at your standard rate under the PAYE system. Your income will be paid to you net of tax; the annuity provider will pay the tax direct to the HMRC on your behalf. Initially, they will take off basic rate tax until they receive confirmation of your tax rate.

Types of annuity

Simply Retirement specialise in four types of annuity – each offering its own features and benefits, depending on your circumstances. Besides standard annuities, we also offer:


* Source –  IRESS, The exchange 07/06/2018.

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    Why take Drawdown advice?

    The Financial Conduct Authority (FCA) produced a report called the Retirement Outcomes Review (MS16/1.3) in June 2018 which commented on how benefits were being taken since the Pension Freedom and Choice legislation was introduced in April 2015.

    Final Salary Pension Schemes

    This will effect you if you have a deferred Final Salary Pension plan or Defined Benefit Pension. If you are a deferred member, i.e., you have left your employer but the pension is not due for payment until your normal retirement date (65?), your right to a Cash Equivalent Transfer Value (CETV) may be affected.

    Budget 2014 – The key changes for annuities

    Using a Fixed Term Annuity or Drawdown will allow you to access 25% of your fund as a tax free lump sum and leaves the remainder of your benefits to be accessed under the further changes proposed from 2015. Therefore, in the interim, this leaves the door open for your options.