Deferred Annuities | Money Saving Advisors
Explore deferred annuities that start payouts later, potentially providing higher income in the future.
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How do deferred annuities work?
A deferred annuity is a financial product where you invest money now, then get a guaranteed income later - usually when you retire. It gives your money time to grow tax-free until you're ready to receive regular payments. Think of it as a future paycheque for your retirement.
Grow a regular income without paying tax
- You make payments over time (or as a lump sum):
You can pay into a deferred annuity all at once or in instalments. Let's say you're 45 and want to start planning for retirement at 65. You invest £20,000 now, or put in smaller amounts monthly - either way, that money gets time to grow. - Your funds grow tax-deferred until you're ready:
Unlike ISAs or pensions with limits, deferred annuities don't have annual caps on how much you can put in. Your money stays invested and growing without income tax until you take it out. If markets do well, so does your future income. - You choose when the income starts:
You decide when the annuity payments begin - often this is post-retirement, but it could be later if you don't need the income straight away. This means you can tailor the annuity to fit your future plans.
The benefits and the things to watch out for
- Peace of mind with guaranteed income:
A key reason people choose deferred annuities is security. If you're worried about running out of money in retirement, they can be a safety net. You'll know how much you're getting each month, and for how long - some even offer income for the rest of your life. - Not always easy to access early:
One downside? You can't just dip into your annuity pot whenever you like. Early withdrawals may come with hefty fees and tax penalties. Let's say you take out funds before age 55 (or the agreed start date) - you could lose some of your earnings to charges or taxes. - Inflation protection available (at a cost):
You can add features like inflation protection, meaning your annuity income rises over time to match the cost of living. But this will reduce how much income you get initially - something to weigh up depending on your priorities.
Summing up
Deferred annuities aren't for everyone - but if you're planning for retirement and want guaranteed income later, they can be a smart, stable choice. Just be sure to understand the fees, access rules, and any add-ons you might need before you commit.
Frequently Asked Questions
Can I still have a pension if I get a deferred annuity?
Yes, a deferred annuity can complement your pension. It's a separate product that provides extra income in retirement. Many people use annuities alongside workplace or private pensions to create a more stable, long-term income stream tailored to their needs. By combining both, you could have a more diverse and reliable retirement plan.
Is the money in a deferred annuity safe?
It depends on the annuity type and provider. Fixed annuities are more secure, while investment-linked ones carry some risk. Make sure your provider is FCA-regulated. If so, you may be protected by the Financial Services Compensation Scheme up to certain limits. Either way, it's always important to assess the financial stability of the provider before committing.
Can I leave my annuity to my family when I die?
Yes, some deferred annuities allow you to name a beneficiary. You can also choose features like a spouse's pension or a guaranteed payment period, so income continues for a set time after you die. This ensures your loved ones are supported financially even after you're gone. Be sure to check the options when you buy the annuity.
What happens if I need the money before retirement?
Deferred annuities are designed for long-term pension savings, so they're best suited for money you won't need until later in life. In most cases, early withdrawal could mean losing some of your investment, and high fees and tax charges, so it's important to plan accordingly. Always check the terms before committing your funds.
Are annuities better than ISAs or pensions?
Not better - just different. ISAs offer flexible savings with tax benefits, pensions offer tax relief, and annuities provide guaranteed income. Many people use a combination to build a solid retirement plan that suits their income needs and lifestyle - the best choice for you depends on your financial goals.
What are the alternatives to deferred annuities?
Other kinds of pension annuity include variable annuities, where payments fluctuate based on how well the investments perform, temporary annuity for short-term income, lifetime annuities with fixed payments for life, and immediate annuities for income that begins right after you invest. Joint life annuities are for couples, while enhanced annuities offer higher payments for those with health issues.
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