Pension Planning - Annuities

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Annuities

An annuity is a special investment where you swap a lump sum, usually the pension fund, for a regular income, i.e.. your pension. Once the annuity is bought, you can't get your money back as a lump sum. The annuity rate tells you how much income you will get for your lump sum and is expressed either as a percentage or as so many £s for each £10,000 lump sum. For example, an annuity rate of 6 per cent is the same as £600 for each £10,000 invested Annuity rates are changing all the time. But the rate at which you convert your pension fund to income sets the pattern of your pension for the whole of your retirement, regardless of any subsequent changes in annuity rates.

Instead of using your pension fund to buy an annuity straight away, you can put this off, currently as late as the age of 75 and, in the meantime, draw an income straight from your pension fund.

The Inland Revenue limits the pension and other benefits you can get from occupational pension schemes. In general, these limits apply regardless of whether schemes are salary related or money purchase. However from April 2001, occupational money purchase schemes will be able to opt into the new 'DC regime'. If they do opt into this regime, there will no longer be limits on the amount of pension, and other benefits that can be received from the scheme, only limits on the amount that can be paid in. Occupational money purchase schemes that do not opt into the new DC regime continue to be covered by the limits.

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