Choosing your annuity
Utmost care must be taken when choosing an annuity because this
is likely to determine the amount of money you get to live on for
the rest of your life. It is vital to work out exactly which
annuity suits your retirement needs, depending on your own needs
and your family.
When you are nearing retirement, your pension provider may send
you a quotation regarding your pension scheme. When this happens,
it may be wise to shop around to try and find a more attractive
annuity - which is called taking the
Open Market Option.
If you find another provider that offers better terms that will
deliver a larger retirement income, you are legally entitled to
take the value of your pension scheme from your current provider
and buy an annuity off the other provider.
Shopping around is vital - pensions experts estimate that some
retirees can increase their retirement income considerably, in some
cases by 50% or more. However, this will depend on the age and
health of the pension scheme holder.
Pension commencement lump sum
Many people choose to take a pension commencement lump sum and
use the rest of their pension fund to purchase an annuity. This
single payment is tax-free and can be spent, saved or invested as
the policyholder sees fit.
Once the lump sum has been taken out of the equation, the
remainder of the money is used to purchase your annuity, and you
can choose the frequency at which the income is paid.
Pension annuity payments are made on a monthly, quarterly,
half-yearly or annual basis. A monthly annuity payment is the most
common way of receiving pension annuity, as most people prefer this
to make budgeting easier, having always been paid on a monthly
basis.
