What is an Annuity

What is an Annuity?

Everybody talks about them, only a few know what they are.  Here is a simple explanation, when you get to retirement you will have built up a pension fund and that pension fund is invested with an insurance company.   They agree to pay you a monthly income for the rest of your life. 

It is a monthly income or an annual income for the rest of your life.

There are different types of annuity, and you will need to think about what sort of annuity is right for you when you come to retire.

The best analogy we can give is to think of it like you are buying a car.  When you buy a car you have a basic model, if you then want to have extras E.g A CD player, it will cost you extra.  The more extras you add onto the car, the more expensive it becomes.  It’s the same with your pension and your annuity.

If you wish to add bolt ons to your pension, such as you would like to add a spouses benefit for your partner, or a guaranteed income rate for a number of years, all of these bolt ons cost extra.  This means the annuity becomes more expensive and your income starts at a lower level.

This means that every time you add a bolt on to your annuity the more expensive it becomes and the more expensive it becomes the lower the starting level of your income.

This is the basic understanding of an annuity and there are decisions you will need to make at retirement to decide which annuity is best. 

So for help with understanding this and what different 'bolts ons' you can add, speak to us.