Retirement Annuities

We at Michael Hannon Financial Services are committed to finding most suitable financial products which best suits your financial needs and objectives, and none are more important than your post retirement income. An annuity is the 'traditional' form of providing post retirement income for you, and is the one most people are familiar with. It pays a guaranteed monthly 'pension' for life.

How does an annuity work?

An annuity is a secured income for life in exchange for all or part of the pension fund accumulated at retirement. The amount of secured income payable relative to the fund amount depends on a number of factors including the mortality of the individual, the level of interest rates at the time of the annuity purchase, the size of the pension fund on retirement, type of annuity and state of health of the individual when purchasing the annuity.

Annuities can be 'single' or 'joint life'. A single life annuity is payable for the life of the annuitant and ceases on their death. An annuity can be provided for a set period of years and therefore should the annuitant die before the expiry of the set period the balance of payments would be paid to their personal representatives. This is known as the 'guaranteed period' and is most commonly chosen for five years, however a period of 10 years can also be selected but this is a more expensive option.

A joint life annuity is payable for the life of the annuitant and on their death is payable to a spouse or another named dependant for the remainder of their life. A joint life annuity is more expensive than a single life annuity and will reduce the amount that could be paid to an annuitant during the course of their life.

An annuity can only be purchased from a life assurance company. Most pension policies allow an 'open market option' which means that whoever is purchasing the annuity has a choice of going to any insurance company operating in the market and Michael Hannon Financial Services will research the market to find the most competitive annuity rate for you.

Also an annuity can be indexed to protect it against inflation, in other words it escalates in payment by a chosen rate at the outset, say 3 or 5%. However it must be remembered that when this feature (i.e. 3% or 5%) is chosen at the outset the amount of annuity payable on retirement will be lower.

Tax treatment

The annuity payable to the individual, spouse or dependant(s) is subject to income tax and the health levy under the PAYE system. Tax is deducted at source based on the individual's marginal or standard rate of income tax. The health levy is not deducted for those aged 70 or over. If you are close to retirement or have already retired speak to Michael Hannon Financial Services today to review your post retirement options.