How To Buy An Annuity

Under current UK legislation anyone 55 or over with a pension fund can purchase an annuity.

Follow our step-by-step process and you will be able to purchase an annuity with the right provider:

Step 1 – request a retirement pack from your existing provider/providers.

Step 2 – understand the annuity that is being offered and the terms of the proposed annuity.

This will include the amount of tax free cash, guaranteed period, payment frequency, whether payments will remain fixed or increase and finally any spousal benefit.

An example of this would be “Maximum tax free cash, 5 year guarantee, monthly in arrears on a level or fixed basis with a 50% spouses benefit”

We can break this down to explain further:

A £100,000 fund would provide £25,000 tax free cash

The residual fund of £75,000 provides the annuity of say £4000 per annum

This would provide monthly payments of £333.33 per month for the rest of your life.

A 5 year guarantee period ensures the £333.33 per month is paid to your spouse in the event of your death for the first 5 years. Remember, whilst you are alive you will always receive the £333.33 per month.

Payments on a level or fixed basis mean they will not change. There are options to have increases based on a set figure (3%) or CPI or RPI. Any built in increases reduces the starting level of your annuity.

The 50% spouses benefit means in the event of your death, a 50% spouses payment would continue to your wife for the remainder of her life. In this example it would be £166.67 per month.

Step 3 – Use our retirement options report to see whether you can get a better annuity than your current provider is offering.

Step 4 – Complete the application form for the provider (either paper or online) and complete the open market option forms and lifetime allowance declaration.

Step 5 – Your proposed annuity provider will request the funds from your old pension plan.

Step 6 – Your old pension plan pays out direct to you the amount of tax free cash you have specified up to a maximum of 25% with the balance of the funds sent to your new annuity provider.

Step 7 – The new annuity provider set up the annuity (fixed income for life) on the annuity basis you have requested.

Important to remember – under current legislation you cannot change your annuity or annuity basis in the future.