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Is a variable annuity the perfect fit for your dream retirement?

Ever wondered what an annuity is? Or when you should start considering one? Or what people mean when they talk about an ‘annuitization phase’? Then keep reading for all this, plus a special SmartPurse announcement...

An annuity is a product typically (though not always) associated with retirement. By buying an annuity, your money is invested, and you will receive a set, regular income for the rest of your life - no matter how long you live. 

If you use your pension pot to buy an annuity, this is called a ‘Pension Annuity’. Anyone over the age of 55, with at least £5,000 in your pension, can buy an annuity.

There are many different types of annuities available - you can even buy a joint annuity which can lead to a lower regular income, but means that both you and your partner are financially protected.

How does it work?


Accumulation phase

First, you buy your annuity. This means going to a financial service provider, and getting a quote, which will depend on factors including your age, your health, the amount of money you have available, the current market risk, and so on…

When you have bought your annuity, you will have a cancellation period, but after this, you cannot back out of the agreement, as your money will then be invested and begin to grow. 


Annuitization phase

When you buy your annuity, you will agree with your provider when your payments will begin. Once you reach this time, you enter the ‘annuitization phase’, which means you will begin to receive your regular payments. This continues until you reach either a previously agreed upon end-point, or you die

Sharing Pensions found that the average annuity rate in the UK, as of June 2021, is £5,000 per year, based on the example of a 65 year old who has bought an annuity of £100,000.

Why are annuities useful?

  • They grant you a secure, regular income for the rest of your life
  • They provide you some security and ease any anxiety surrounding investment risk
  • Specific types such as ‘joint’ or ‘survivors’ annuities can provide some income to your dependants or loved ones after you die

What do you need to be aware of?

  • As we mentioned, after your cancellation period, you cannot back out of an annuity
  • Depending on how long you live, you might not get back as much as you paid in 
  • Most people won’t be able to live off of an annuity alone, meaning you will need to have other sources of income or pension funds saved
  • Anything income you receive which is above your personal allowance is taxable, and could also impact any benefits you receive

A very special SmartPurse announcement...

Have you noticed that many of our recent articles (this one included!) have been about pension planning & retirement? That’s no accident, and today we’re excited to announce the reason why...

After receiving many requests from you, our brilliant community, we’re finally expanding our offerings with a new UK Pension module, available from Friday 23 July!

What does our new module cover?

  1. All the basics: we've updated our four existing lessons with new, 2021-specific information!
  2. Your pension at work: explore career breaks, part-time work, and how you can make sure you're doing the most with your workplace pension
  3. Turning your pension green: three lessons on sustainable pensions, including an exclusive checklist to help you decide which provider will do the most with your money
Start learning today!

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