What is an annuity?

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The annuity option
Income in retirement
As part of retirement planning, many will have built up a pension fund, either with an insurance and pensions company or in their own, self-managed fund. In order to convert this pot of cash into an income, some kind of further investment is required.

In most cases, the purchase of a retirement annuity will provide that income for the remainder of the investor’s life.

What is an annuity?
The annuity is a fund that you buy into. The company that you choose to buy it from, usually one of the big insurance companies, promises to pay you a secure income in exchange for your pension fund.

What do I buy?
In order to ensure that the best deal is obtained you should use an annuity calculator. These can be found online and will show you which company offers the best deal at that point in time. The amount available per sum of cash, called annuities rates, will vary over time as the stock market varies, so choosing your moment to make the investment is critical. If you are having doubts, you should obtain independent annuity advice.

Annuity options
As well as providing a defined benefit for you, it is also possible to provide a retirement benefit for your partner after your death. Additionally, some annuities will guarantee a fixed increase per annum for an agreed number of years. So there are many choices to be made to ensure that you find the best pension for your circumstances. Retirement advice is essential unless you are very confident and competent in this area.
Other choices
Deferred pension
Until recently, UK law forced everyone to invest their pension fund until the age of seventy-five. This is no longer the case and some are choosing a deferred annuity, which only starts to produce income upon request. Obviously, the longer a pension fund interest has to build the better annuity will pay.

Get independent advice
This advice has been repeated to emphasise the importance of finding an independent advisor to compare annuities and help with the choice you make.