Annuities remain an important option for those approaching retirement, offering a way to turn a pension pot into a predictable income. With many people now relying on defined contribution savings rather than salary-linked pensions, understanding how annuities work can help individuals plan confidently for later life. Also consider arrangements such as a UK power of attorney when making decisions.
How Annuities Provide Income
An annuity is a contract that allows you to exchange part or all of your pension savings for a guaranteed income. This can be set to last for life or for a fixed period, depending on personal preference and financial goals.
Once purchased, the terms are fixed, so it’s important to compare rates carefully. Providers calculate payments using factors including age, health, location and current interest trends.
Key Choices When Buying an Annuity
Before selecting an annuity, it’s useful to understand the available features. Payments can remain level or rise annually, and buyers can choose whether income is paid monthly or at other intervals. Joint-life options allow a spouse or partner to continue receiving income after the policyholder dies, while additional protections, such as guarantees or value protection, can ensure money is passed on to beneficiaries.
Also consider setting up a UK Power Of Attorney to appoint someone you trust to manage your finances for you, should you lose capacity in the future.
When an Annuity Might Be Suitable
Annuities can appeal to individuals who prioritise stability, offering reassurance that essential expenses can be covered. They can also complement more flexible arrangements, helping build a balanced approach to retirement income.
