Immediate Annuity - get up to 40% more
An immediate annuity is a retirement income plan that can be bought with your own money from non-pension sources such as savings, investments, an inheritance, or the tax free cash lump sum from a pension fund. This type of annuity could provide you with a tax efficient, additional income from the age of 55. It works by providing you with a guaranteed income for the rest of your life.
How does an immediate annuity work?
When you purchase an immediate annuity, you enter into a contract with an insurance company to purchase a guaranteed stream of income. Some of the benefits of this could include:
- Guaranteed income – an immediate annuity will pay you a regular income for life, so it's a relatively low risk option. Your income will stay the same year on year, which could help you plan your financial future more effectively
- Various income options - You can choose to receive your income monthly, quarterly, half-yearly or annually
- Many immediate life annuities come with a guarantee for a limited time – this can sometimes be extended, so check with your provider
- An immediate life annuity is usually taxed differently from pension annuities - HM Revenue and Customs may agree that part of your initial payment is a return of capital and therefore not subject to tax. However, tax rules depend on individual circumstances and may be subject to change in the future
Points to consider when taking out an immediate life annuity:
- Depending on how long you live, you may get back less than you bought your annuity for – for this reason, an immediate life annuity may not be the best option if you are in poor health or have a below-average life expectancy
- Inflation could erode the value of your income in real terms – because your income from an immediate life annuity is fixed, the real value of your money could depreciate over time
- There is no cash-in value to an immediate life annuity - Once you've bought an annuity, it cannot be cashed in at any time in the future. While this means that you don’t have to pay it much attention once you’ve purchased it, one disadvantage is that an immediate payment annuity is irreversible once it has been purchased. This could present a problem if something unexpected occurs and you suddenly find yourself in need of access to a large amount of money at once
- What happens to your annuity when you die? – In most cases, an immediate lifetime annuity dies with you, meaning that you cannot leave any residual money to your partner, children or other dependants
- The options you choose at the start of your plan can't be changed
To compare a wide range of annuity options and find the one that’s right for you, use the comparison tables below: