Immediate Annuities | Money Saving Advisors
Discover immediate annuities that begin paying income right after you purchase, offering quick retirement cashflow.
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What's an immediate annuity?
An immediate annuity is a financial product that gives you a regular income for life, starting right away. You use a chunk of your pension pot to buy it, and in return, the insurance provider pays you a guaranteed monthly income - no matter how long you live. The goal is to have a simple, steady, and stress-free retirement income.
Why people choose immediate annuities
- Guaranteed income for life
The biggest selling point is reliability. Once it starts, your income doesn't stop - no matter how long you live. If you buy an annuity at age 65 with £100,000, you might get around £5,500 a year for life. This can help take the guesswork out of budgeting in retirement. - No need to worry about markets
Standard annuities are usually a fixed rate, which means your income won't rise or fall based on stock market performance or interest rates. Even if the markets crash or rates dip, your annuity rate stays the same - giving you peace of mind in uncertain times.
Things to consider before you commit
- It's a one-time decision
Once you buy an immediate annuity, you can't usually reverse it or get your money back. It's a long-term commitment. So if you invest £75,000 in an annuity and change your mind later, you can't access those funds again. - Inflation can bite
Unless you choose an inflation-linked or variable annuity (which pays less upfront), your income stays the same - even as living costs rise. So, while £500 a month might feel fine at present value, it may not stretch as far in the future.
Summing up
An immediate annuity can offer peace of mind and financial security by turning your pension into lifelong income. It's ideal if you want to keep things simple and avoid managing investments in retirement. But it's not for everyone - so make sure you understand the pros and cons before locking in for life.
Frequently Asked Questions
How do immediate annuities differ from deferred annuities?
Immediate annuities take a single premium, a lump sum payment (usually from your pension) to buy the annuity. In return, the provider pays you a regular, guaranteed income straight away, for the rest of your life. Deferred annuities allow you to invest money now and receive guaranteed income payments later, typically during retirement.
Can I leave any money to my family?
Standard immediate annuities stop paying when you die, so there's usually nothing left to pass on. But you can choose extra features - like a joint annuity or guaranteed payments - that continue income to a spouse or pay out for a specified period. These options reduce the monthly payments but are less of a risk for loved ones.
What if I live longer than expected?
That's the big advantage. An annuity keeps paying you for as long as you live, even if it's far longer than expected. You could end up getting more than you originally paid in. It's like insurance against outliving your money - offering financial comfort in your later years, no matter what your life expectancy or how long your retirement lasts.
Are there different types of immediate annuities?
Yes, there are several. A level annuity pays the same amount each year, while an escalating annuity has annual increases. You can also choose inflation-linked annuities. Some allow payments to continue to a partner or over a set period. These choices affect your starting income, so it's worth understanding the trade-offs. "Immediate needs" annuities are something else - they're meant to cover the cost of long-term care.
Is an immediate annuity right for everyone?
Not always. It's ideal if you want guaranteed annuity payments and don't want to manage investments. But if you prefer flexibility, want to keep access to your money, or want to leave an inheritance, other options like income drawdown might suit better. Your health, lifestyle, and financial goals all play a part - so it's best to shop around and speak to an advisor. You can also use an annuity calculator to help you decide.
Do I pay tax on immediate annuities?
In the UK, you generally pay tax on income from immediate annuities as it counts as earnings. So you're liable for income tax in the usual way, depending on how much income you receive and your total throughout the tax year. Annuities aren't usually tax free, unless it's an immediate needs annuity paid directly to a care provider.
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