Guaranteed Income for Life
Prior to the introduction of pension drawdown, it was common for retirees to buy an annuity with their pension fund. An annuity is a guaranteed income for life and so acts like a final salary pension. There are various options that can be added such as inflation linking (the income start lower but rises), guarantee periods (the income continues if you die early) and spouses’ pension (the income continues for the rest of your spouse’s life if you die first).
Annuities had fallen out of favour in the last two decades, as drawdown became a more flexible option and low interest rates meant low annuity rates.
They have a place in pension planning though. For example, you don’t have to use all your pension fund to buy the annuity. You can use enough to buy an annuity to cover your essential expenditure in retirement such as housing costs and food. This leaves the rest of the pension fund to be drawn flexibly to fund the more discretionary expenditure such as meals out or holidays.
As interest rates rise again, annuity rates have also risen, making them more attractive. High inflation does, though, eat very quickly into a level annuity so consider some inflation linking.
Annuities are available to Altor clients in our Core Service.
Nothing on this website or its links constitutes a personal recommendation; the information contained is designed to be informative but not to be relied upon as individual circumstances could affect the relevance of this guidance.