Annuities and Taxation

Annuity Best Buy Deals

If you are nearing retirement age, you will be faced with a number of options with regards to your pension.  One of the options that you may be considering is converting your pension funds into an annuity plan.


With regards to annuities and taxation, a number of rules apply. The situation is currently the following:

 

  • Upon taking out an annuity, you are entitled to also take out a tax-free lump sum of up to 25% of your pension
  • Annuities are then taxed through Pay As You Earn (PAYE), like any other personal or company pension


Take a look at some the annuity deals we have selected as being some of the best available right now.

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Purchasing an annuity plan involves you exchanging your pension to an insurance provider in return for a guaranteed fixed income paid to you until your death.  This could be beneficial to you if you live longer than expected, as you could end up receiving more funds than those in your original pension fund. 


On the other hand, you could potentially lose out on some of your pension if you were to die early as, unless you have an annuity with a guarantee period, your heirs would not be entitled to receive any money.


Many people opt for phased retirement, which involves trading segments of your pension in instalments, for example on a yearly basis.  As you are entitled to a tax-free sum each time you buy annuity, you would receive this each time you convert a part of your pension in this way.


When looking into purchasing annuity, it could be crucial for you to compare the plans available to you from a number of insurers. 


You might also wish to compare the pros and cons of the different types of annuity available to you, such as:

  • Level annuity
  • Escalating annuity
  • Single annuity
  • Joint-life annuity
  • Annuity with a guaranteed period
  • Phased retirement
  • Postponed annuity

 Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.