The most popular option…
Conventional pension annuities, also referred to as Compulsory Purchase Annuities (CPAs), are by far the most popular option. Once purchased, the level of income is guaranteed for your lifetime and the lifetime of your spouse.
These types of annuity are popular because you will know from day one of the scheme just how much you will receive each year** for the rest of your life. This security allows you to plan your life and living standards accordingly.
Main advantages
- Predictability of a fixed regular income.
- Can take a tax-free lump sum (usually up to 25%) at the start of the scheme.
- Security in the knowledge that you will always have an income and not ‘outlive’ your pension savings.
- Incremental increases can be agreed.
Main disadvantages
- Cannot mitigate changing circumstances, such as increasing care costs or other personal changes.
- Cannot be changed or adjusted to take advantage of future investment return opportunities.
- Adding death benefits will mean a lower starting income which cannot be changed once chosen.
Alternatives are available but these do have some form of risk involved, either to the level of income you may receive or the ongoing value of your pension funds – or a combination of both.
So, if you have a private pension or ‘money purchase’ company pension, you can use a pension annuity to convert the funds you have built up into a regular income which is paid for the rest of your life, tailored to your circumstances.
**Pension annuities are taxable and the rates of tax may change.