You can normally take up to 25% of your pot as tax-free cash and use the rest to buy an annuity to provide you with a guaranteed regular income.
You can either buy a guaranteed income that will last for your lifetime, or one that will last for a fixed period.
There's lots of other options to think about too - and how much income you're offered will depend on which options you choose.
How does a guaranteed income work?
How much guaranteed income can I get?
What income you’ll get depends on:
- your circumstances, like your age, health and lifestyle
- the amount of money in your pension pot
- annuity rates
- and the options you choose.
Different types of guaranteed income
There’s various different types of guaranteed income, and a range of options to choose from when you set it up. Some of the benefits, like continuing to pay an income to your partner after you die or choosing an income that increases each year for example, could mean you’re offered less income per month.
So it’s important to weigh up how important each option is to you, against the effect it will have on your income amount.
Choosing the right guaranteed income for you
For example, when choosing which options you want your income to include, you’ll need to think about…
…whether you want a guaranteed income for the rest of your life, or just for a period of time more
If you choose: lifetime
Pays a guaranteed income for the rest of your life
If you choose: fixed term
Pays for a set number of years – you choose how long (normally anything between 3 and 25 years). And you can choose whether you just want to buy the income for that amount of time – or if you want to pay a bit extra and get a ‘maturity amount’ (a lump of money) when the fixed term ends too.
…whether you want your partner or loved ones (called your ‘beneficiaries’) to get an income after you die as part of the agreement – or if you’re happy for the payments to end when you pass more
If you choose: single life
The income payments end when you die.
If you choose: joint life
Payments continue to your partner/beneficiary after your death. You can choose whether you want their income payments to stay at the same amount yours were, or if you want them to get a different income amount.
…whether you want the added security of knowing that your income is guaranteed to carry on paying out for the next few years, even if you die within that time more
If you choose: income with a ‘guaranteed period’
Income is guaranteed to be paid, as agreed, for a set period of time after you set it up – usually for anything between 5 and 10 years (but some providers offer up to 30 years). If you die within the agreed time, the income payments will carry on but to your beneficiary instead of yourself.
If you choose: value protected (also known as capital protected)
Pays your beneficiary the amount you paid for the guaranteed income, minus any income already paid to you, on your death.
…whether you want your income payments to go up as time goes on – or whether you’re happy for your payment amount to stay the same year after year more
If you choose: level
Income payments stay the same year after year, for as long as your guaranteed income agreement lasts.
If you choose: escalating
Income payments increase each year to reduce the effects of inflation.
…whether you want other factors, like your health or the performance of investments for example, to be taken into consideration when agreeing your income amount more
If you choose: impaired life (also called ‘enhanced’)
Pays more income for people with certain health or lifestyle conditions.
If you choose: investment linked
The income amount can change depending on how investments are performing.
If you’re in ill health or you smoke for example, you could be offered a higher amount if you choose an impaired-life income.
So it’s the only time it pays to be ill! Make sure you disclose all of your medical conditions to your annuity provider – you could be better off.
You won’t be penalised for medical conditions like you would be with a life insurance policy for example, it’s actually the opposite – the worse your health is, the more income you could be offered.
These are some examples of the main options you’ll want to consider if you’re thinking about buying a guaranteed income. But there are lots of other options and different types of income too. So we recommend you do your own research and shop around on the Pension Wise website…
Things to think about if you're...
Does The People's Pension offer this option?
We don’t offer a guaranteed income or annuity product. But you can transfer your pension savings out to another provider who does offer a guaranteed income if you want.
If you’re planning to use your pension pot to buy a guaranteed income with a different provider, you can move your pension savings with The People’s Pension into our Annuity Fund in the meantime.
This means that your money will be invested in a way that’s designed to suit someone who is planning to transfer their money to an annuity provider in exchange for a guaranteed income in the future.
Will I pay tax on the money I receive?
Will this option affect my tax relief if I want to continue saving into a pension?
Is the income guaranteed to last for the rest of my life?
Do I have any other choices once I've selected this option?
Can I leave money to someone when I die through this option?
Comparing with other providers
What are the risks?
How do I choose this option?
|All your options at retirement||Keep your money where it is||Take it all in one go||Take it a bit at a time||Buy a guaranteed income or 'annuity'|
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Where to get guidance and advice
Retirement planning = big decisions
Find out where to get help (our website, Pension Wise or LV= to name but a few).