If you are currently uncertain about buying a lifetime annuity, you could consider a fixed term annuity which pays you a regular income for a fixed period of time. You can choose the amount of annuity income you receive and specify your preferred term between one and 25 years.
At the end of your specified period, if you haven’t consumed the whole amount, it pays you a guaranteed amount known in advance. At maturity, you can reassess your retirement needs and use this maturity amount under the pension freedoms to buy another fixed term annuity or invest in another retirement income product, such as a conventional annuity or enhanced annuity if your health has deteriorated, or take it all as cash, subject to income tax.
Any income or lump sum you take in excess of your tax-free cash entitlement will be added to your other income in that tax year and potentially subject to tax at your highest marginal rate. Therefore, if you wanted to take your whole pension as a cash lump sum, this means you could have to pay tax at the highest rates (40% or 45% in tax year 2021/22).
Alternatively, after taking your tax-free cash, you could use a fixed term annuity to potentially minimise tax by taking all the balance as a regular amount of income over several tax years without any guaranteed maturity payment. You may therefore benefit from paying tax on your annuity income at a lower rate.
Ask one of our Annuity Specialists for more information about fixed term annuities, and a comparison table showing the highest annuity rates available for this type of annuity from the UK’s leading annuity providers. Call us now on 0800 652 1316.