Pension Annuities – Pros & Cons

If you saved money by investing in a defined contribution pension scheme while employed, then you’ll be tasked with deciding what to do with your pension fund as you approach retirement age. One such option is to purchase a lifetime annuity. While this is the best option for some people, there are pros and cons of annuity pensions which we will discuss today.

What Is An Annuity?

Annuities are purchased from insurance companies. These instruments require you to pay a provider a lump sum in return for income that’s paid out regularly for the remainder of your life. The income is guaranteed and is not dependent on a pot of money, so you’ll get back more than you paid if you live a long life.

Many people prefer annuities because they are reliable and ensure that you always have an income stream. On the downside, the income may be less than if you chose another strategy.

How Much Do Annuity Pensions Pay?

The amount of income that you’ll receive is based on several factors, including:

● Your age
● How much you paid for the annuity
● The provider’s annuity rates
● Your overall health

Yet, other factors should be considered, such as whether you want the amount to increase over time and whether your spouse is covered as well. Some companies even factor your postcode into the price, so when combined with varying annuity rates, you may find that choosing one provider over others pays out tens of thousands more over the course of your life.

To properly determine how much an annuity will pay, it’s best to discuss this with your financial adviser. This person can take your entire situation into account, search the market to find you the best deal, and check if you qualify for guaranteed annuity rates or an enhanced annuity.

The Pros and Cons of Annuity Pensions

Still, before deciding that an annuity pension is right for you, it’s essential to understand the benefits and drawbacks. Here’s a quick overview of the top pros and cons of annuity pensions:

The Pros
● The income is guaranteed. So, even if the markets crash or you live to be 112, your income stream doesn’t change.
● You can opt for income increases, which allows your buying power to stay in line with inflation.
● Your income may continue after your death if you choose specific options during the quote and application process.

The Cons
● You cannot cash in an annuity.
● You cannot change options most of the time, even if your circumstances change.
● Annuity rates can rise, and if they do, those already being paid out do not benefit from rate increases.

The Bottom Line

In the end, planning for retirement is crucial and requires a great deal of time and planning. For this reason, it’s best to start the process early and always keep up on new pension changes and trends when possible.

If you are still unsure of your options and would like help choosing the right type of pension, contact a trusted financial adviser or get matched with one using the Pension Easy system today!