Pros and cons of annuities
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Pros and cons of annuities

 





 

 

Annuities are financial contracts providing an income stream after an initial payment. They are used to manage private pensions and provide retired people with incomes. You can find annuities online that help people turn their pension funds into 'incomes' for life'. Annuities have become more popular as inflation rates began to rise and uncertainty in the financial markets increased. Annuities were viewed as a safer option for providing security until death for both partners. However, they aren't right for everybody and do have their downsides.

 

 

The biggest problem with annuities is that they're permanent. Once you have made the decision to switch your pension fund to an annuity there is no going back. This makes getting the right annuity from the right company incredibly important and is a decision that should not be made lightly.

 

 

However, there are also many benefits. Annuities are less risky than traded pension funds. They don't suffer from the same peaks and troughs in profit and loss that pensions traded on the stock market are prone to. Additionally, because you will know exactly how much money you're going to receive for the rest of your life you can plan into the future. Annuities work just like incomes, rather than funds.

 

 

Additionally, buying annuities online gives you the freedom to choose inflation matching products. You can pick between fixed-rate or pegged increases that match inflation rises charted on the Retail Price Index (RPI).

 

 

Another bonus of pension annuities is being able to choose to provide for your partner if you die before them. They will receive a guaranteed income upon your death until they pass away.

 

 

Finally, if you are concerned about ill health in the future, a pension annuity is a better option than a pension fund. You could receive a boosted income if you are diagnosed with an illness listed on the qualifying lift from your annuity provider. This could give you an extra 40% in income.

 

 

A disadvantage that needs to be factored in is the issue of tax. Annuities are taxed under the PAYE tax system, the same used to tax employees and employers. You should be aware of how much you'll get taxed before taking out annuities online.

 



You can find out more about annuities online from the HMRC website.

 

 

 

 


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