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Options at Retirement

Buy an income for life

(Lifetime annuity, often shortened to an annuity)

An annuity is a pension income product purchased by some or all of your pension fund to provide you with an income, and is normally payable for your lifetime.

The amount of income you might receive from an annuity is based on a number of factors including the value of your retirement fund at your chosen retirement date, age, the annuity rates available at that time and the type of annuity product you choose to purchase. 

There are various types of annuity designed to suit personal circumstances, health and lifestyle. For example:

  • Single Life Annuity – which is payable for your lifetime only
  • Joint Life Annuity – this pays a pension to your surviving chosen beneficiary if you die first
  • Level annuity – which pays the same amount throughout your lifetime
  • Escalating Annuity – this pays a lower rate than a level annuity to start, but increases each year
  • Enhanced / Impaired Life Annuities – these pay a higher income if you have health problems, are a smoker or over-weight, or have followed certain occupations. (This is not an exhaustive list). 
  • Investment Linked Annuities – either with profits or unit linked. Retirement income will vary to reflect changes in the value of investments such as stocks and shares. All guarantee a minimum income that will be paid.

If you are taking your benefits for the first time, you can normally take 25% of your total pension fund as a tax-free lump sum.  If you elect to do this, the balance of your pension fund is then used to buy an annuity; the income will be subject to income tax. The lump sum must be paid within 12 months of buying the annuity.

IMPORTANT: You do not have to buy an annuity with Sanlam and by shopping around you could increase the amount of income you receive in retirement. There are a number of websites that offer a dedicated annuity shopping around service, allowing you to compare and purchase different annuity products and options offered by different providers; just like there are with motor and travel insurance. One of the websites available is www.moneyadviceservice.org.uk/en/tools/annuities    

Choosing which annuity to buy can be a complicated process and we recommend that you seek guidance or take financial advice before making your decision. Once purchased you cannot reverse your decision. More information on guidance and advice.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.