YOUR MONEY
| An annuity is a contract you make with a life insurance company. In return for a sum of money, the firm will make regular payments to you for the rest of your life after you retire. | |
| When you’ll need an annuity Under current legislation, holders of personal pension plans and retirement annuities must buy an annuity when they reach 75. If you’re holding private top-up schemes, called FSAVCs (Free Standing Additional Voluntary Contributions), you can only buy an annuity when you retire from the company scheme you belong to - if you’re still working with the company. If you have left the company’s employment earlier, then you can buy an annuity earlier. If you have an earlier type of personal pension, called a Section 32 Buy-Out plan, then you’ll have to buy the annuity at retirement. If you are a member of an occupational scheme you may be given the option to select the type of annuity you get. But sometimes you don’t have a choice. Not all occupational schemes buy annuities. Some choose to pay a retirement income to pensioners straight from their funds. | |
| What type of annuity you should have From a given fund, the maximum amount of income would come from an annuity which will not rise in line with inflation, is only payable one year in arrears, and pays nothing to dependents if you die. For every extra benefit you choose, the initial level of the annuity will fall. An annuity which grows by 5 per cent a year could take as long as 18 years to pay out the same income -- in real terms -- as one which is not inflation proofed in any way. | |
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