The Pros and Cons of Annuities
Annuities allow retirees to receive a guaranteed income for life in exchange for a lump sum payment from your pension fund. Understanding both the potential benefits and limitations of annuities can help UK retirees decide if making them part of their retirement strategy makes sense.
What is an Annuity?
An annuity is a financial product issued by an insurance company that provides fixed payments to a beneficiary until death. The purchaser (annuitant) pays a lump sum upfront, which provides the capital that the insurer invests in a low-risk strategy to match ongoing annuity payments. There are several types of annuities in the UK:
- A standard lifetime annuity – A guaranteed income for the life of the annuitant. It can include payments to the spouse after death in exchange for a reduction in the annuity income. Any such addition reduces the annuity income.
- An enhanced / impaired life annuity