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        Updated: April 16, 2024

        Buying an Annuity

        Could an annuity be the right option for you pension needs? Find out how to buy one and get the best deal in this article

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        In uncertain times, people are increasingly looking at the best ways to secure their financial future, so as a financial product that does just that, life annuities are growing in popularity. Since income payments go on for life, an annuity means you won’t run out of money in your later years.

        But when is the best time to get an annuity? And how can you ensure you find the best annuity rates? Many people call us to ask about how to buy annuities to make sure they’ll have a guaranteed pension income. As always, making the right decision begins with understanding market specifics.

        Why should I buy an annuity?

        Whether you’re looking into purchasing an annuity for retirement or just want some guaranteed income for a certain period of your life, there are some situations when an annuity could be right for you.

        Why do I have to buy an annuity?

        Some common reasons for buying annuities are:

        • You are looking for an investment that offers long term security and protection
        • You don’t want to bet on the stock market with your investments
        • You prefer predictable income and investments
        • You would like to know exactly how much interest you will make on some investments
        • You’d like an annuity as an alternative to life insurance

        Guaranteed income can become more important as you get closer to retirement age. You have less time to earn back any potential losses, so may prefer the certainty of a low-risk annuity investment.

        Speak to a expert today

        How to buy an annuity

        You can use the money in your pension pot to buy an annuity, which is an insurance policy that offers lifelong guaranteed income.  An annuity can be purchased by taking a maximum of 25% from your pension pot tax free. The remaining 75% can then be used to buy an annuity. Annuities can be purchased from insurance providers, and your income is fully guaranteed. Even if the insurance company that manages your annuity goes bust, if you buy an annuity in the UK, you’ll be covered by the Financial Services Compensation Scheme.

        Buying an annuity for retirement in the UK

        There are many different types of pension annuities, and as always with financial decisions, the one that’s right for you will depend on your situation and needs. Although all annuities offer a guaranteed income, there are various product features to consider.

        •  If you purchase a basic life annuity, you’ll be able to determine and set your income in advance.
        • An annuity buy-in is when an insurance company agrees to payments for a covered group of participants for the rest of their lives.
        • An annuity buy-out enables a group to transfer back out from their insurance provider and ‘buyout’ or move to another provider.
        • We get enquiries into why and when to buy a variable annuity. A variable annuity puts your money into mutual funds. As a tax-deferred investment, it doesn’t tax your profits until you withdraw money from the account. It’s investment-linked, so your income will vary according to how your investments perform, but they won’t ever drop below a guaranteed minimum.

        We get many enquiries into why and when to buy a variable annuity, a basic life annuity, or what other annuity options are available. If you’re looking into purchasing an annuity for retirement, it’s best to speak to an expert advisor as early on in the annuity purchase process.

        Make an enquiry and we’ll connect you to a annuities specialist who can take you to the best place to buy an annuity in the UK .

        Buying an annuity in Ireland

        With people throughout the UK and Ireland living longer, annuities are popular as a guaranteed income stream for retirement.

        To get the best deal on your Ireland annuity, you’ll need to shop around the whole market and find out what’s available to you.

        An annuities specialist is likely to have access to insurance companies offering annuities in Ireland – whether you’re looking for an annuity for retirement or for an Irish land purchase annuity.

        Get in touch with an online enquiry and we’ll put you through to an expert who can help you find your annuity in Ireland.

        Do I have to buy an annuity with my pension?

        ‘I want to buy an annuity, but do I have to use my pension?’ is a question the advisors we work with often receive. The recent changes to pension freedoms mean that you aren’t limited to only being able to buy a retirement annuity with your pension.

        Can I buy an annuity with savings?

        You can use your savings to buy an annuity or guaranteed income. You may have heard about compulsory purchase annuities—the definition of the term is an annuity which you purchase with your pension savings instead of purchasing the annuity with other savings. But this term is now historical and no longer actively used!

        Can I buy an annuity with savings?

        There are no restrictions to using cash to buy an annuity. But remember that whether you buy an annuity with cash , with your savings, or with your pension, getting a pension annuity is not always the best use of your hard-earned money.

        Speak to an expert advisor to find out more about how to buy an annuity pension and whether or not it’s the best way to maximise your money and financial security. Give us a call on 0808 189 0463 or make an enquiry, if you’d like support on how to buy annuities.

        Should I buy an annuity for retirement?

        Annuities offer financial security for retirement, but they aren’t always the most profitable use of your pension pot. There are some cases when it’s better to keep your money in your current pension and withdraw it gradually. So who should buy an annuity? And do you have to buy annuities for retirement?

        There are pros and cons to buying an annuity, but here are some common reasons people purchase an annuity.

        Advantages of buying an annuity

        There are many circumstances where buying an annuity could be the most financially sound option for your future, though this all depends on your personal circumstances and other specific factors, some of which we have included below.

        • Inflation eats away at your income value, meaning that after longer-term retirement you’ll find your spending power decreases each year. Annuities can help protect against losing money to inflation; some index-linked annuities offer an annual increase to help you keep up with inflation.
        • Payouts can be linked to your health and life expectancy. For example, if you’ve smoked heavily or you have a health condition, you may be able to get a higher annuity rate. Speak to an expert annuities advisor to find out which provider could offer the best deal for your situation or health.
        • You can arrange for an annuity to be paid out to a spouse should something happen to you; this is called a joint annuity. You could also include a guarantee period so your beneficiary(s) gets further payments or a lump sum if you were to die early in the annuity contract.

        The best way to find out if an annuity is right for your situation is to speak to an expert advisor who can help you assess your situation and how it applies to retirement and annuities.

        When to buy an annuity for retirement

        Age and timing matters when it comes to annuities! Whether you’re looking at buying an annuity at age 55, or buying an annuity at 60, or 70, experts generally advise that you consider an annuity after you’ve maximised use of other retirement accounts with tax advantages. Generally, the older you are when you purchase an annuity, the higher your annuities income will be.

        So, if you’re wondering ‘should I buy an annuity when I retire?’ or ‘at what age should I buy an annuity?’ the answer is that there is no single best time to buy an annuity. If you’re concerned about outliving your money and want the assurance of guaranteed income for life, speak to an annuities expert to find out what your best options are. On the other hand, in cases where you have no concerns about outliving your savings, you may not be advised to take out an annuity.

        Where should I buy an annuity?

        Here are some of the top UK annuity providers…

        • Aviva
        • Hodge Lifetime
        • Canada Life
        • Legal & General
        • Just Retirement
        • Scottish Widows
        • Liverpool Victoria

        Although many insurance providers offer the option of buying annuities, the most important thing is to speak to an expert advisor who knows where and how to shop around for the best deal. Providers will offer varying annuity rates for the pot of money invested, and people throw away hundreds of thousands of pounds every year by failing to shop around with the help of an expert.

        The pensions experts we work with have whole-of-market access, meaning that they can find the best deals that aren’t available to the public. Call Online Money Advisor on 0808 189 0463 or make an enquiry and we’ll connect you with a pensions expert who can help analyse your situation and financial options.

        What is the best annuity to buy?

        Pension annuities best buys will depend on many situation-specific factors. For example, if you suffer with health difficulties, you would like to ensure your annuity payout rises to match inflation, or you want to guarantee a payout to an heir. An annuities specialist can show you where is best to buy annuities, so you’ll get access to a wider range of products with the help of an expert annuities advisor.

        Annuity purchase rates

        An annuities provider will give you a personalised illustration of their annuity offer. This will include a definition of their annuity purchase rate,  your options with their company, and which product types are recommended. You can find out which annuity purchase rate is best by shopping around and comparing annuity quotes on the market.

        To discover and compare the latest deals for the purchase price of an annuity rate, get the help of an annuities expert. The financial advisors Online Money Advisor works with have successfully helped thousands of clients get started with annuities; they’re well-placed to help you get a handle on purchasing annuities.

        Purchased life annuity rates

        The definition of a purchase life annuity (PLA) is similar to that of a lifetime annuity in that it offers guaranteed income for life and various investment options. Purchase life annuity rates in the UK will depend on factors including indexation, guarantee periods, a spouse’s pension, or other terms and conditions.

        However, a key advantage of getting a PLA over a lifetime annuity is the taxation of purchased life annuities. Payments from PLAs are divided into two parts: a capital and an interest element. The capital element is not taxable as it’s considered to be a part return of the original capital used to buy the PLA. The capital content will vary according to the specific factors of the annuity holder.

        Purchased life annuities best rates can be found with the help of a pensions advisor. An expert can offer a purchased life annuity provider comparison and advise on purchased life annuity tax treatment and best rates.

        Is buying an annuity a good idea?

        Buying an annuity is a life-changing and often permanent financial decision and one that’s best made with the help of an independent financial advisor.

        One of the experts we work with can assist you with the transfer process, understanding policy information, and ensuring your funds are transferred in the most efficient way possible. They’ll also explain the different types of annuities and help compare options tailored to your situation.

        Contact us today to arrange a free, no-obligation chat or call us on 0808 189 0463 and we’ll connect you with an adviser who understands the annuity market and can make a recommendation based on your situation and goals.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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