Annuity Purchase
The Alternative to an Annuity
You may opt instead of an annuity to take an Unsecured Pension whereby you can take up to 25% of your fund as a Pension Commencement Lump Sum (tax free cash) and leave the balance invested. You may then take an income, if you wish each year, of between zero and 120% of what a level, standard annuity would pay to someone of your age.
After age 75, you may continue doing a more restricted form of income draw down, called taking an 'Alternatively Secured Pension' or ASP. The level of income that can be taken from the pension fund is based on a table produced by the Government Actuaries Department (GAD). Since, 6 April 2007, when the limits were tightened, you must take between 55% and 90% of the relevant GAD figure.
Leaving your pension funds invested means you are potentially at risk from adverse moves in the market value of what your savings are invested in. This can be a highly risky strategy. Independent financial advice is imperative.
You may choose between a single life pension and a joint life pension. A single life pension will be paid to you for your lifetime, but stops on your death. A joint life pension will provide you with a pension for your lifetime and on your death, provide a second pension to your dependants for their lifetime.
The dependant's pension may be at the same level as your pension or may reduce to a set fraction of the pension being paid to you at the time you die. You may also be able to arrange for a dependant's pension to stop on his or her remarriage.
The downside many people see to annuity purchase is the worry of dying the day after they buy the annuity - in which case you get nothing and the life assurance company pockets the cash. This may seem a bit of a gamble. It is. However, you can improve your odds through a payment guarantee.
Introduction
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