Enjoy a secure income
You can turn your retirement savings into a regular income that’ll keep going for as long as you do. This option is also referred to as ‘buying an annuity’.
How does a secure income work?
You’ll give some or all of your retirement savings to an insurance company – and, in return, they’ll pay you a guaranteed, regular income every year for the rest of your life.
How much income you can expect will depend on such things as the money you’ve saved, your age and health when you retire and any extra features you choose to add.
You should also remember that tax rules depend on your individual circumstances and may change in the future.
What features can I add to my secure income?
You’ll find there are many types of secure income available – with lots of different features you can ‘bolt on’. These features are designed to offer extra peace of mind for you and your family after you retire.
- Take care of your loved ones
You can pass a portion of your retirement income to your spouse, civil partner or other dependant(s) should they live longer than you do.
- Keep pace with inflation
You can arrange for your retirement income to increase each year. This can help protect the buying power of your money as prices go up over time.
- Guarantee your income for a set number of years
You can add a ‘guarantee period’ which means your income payments will continue to be paid to a set age – even if you die before then.
- Have a lump sum paid on your death
You can arrange for a lump sum to be paid to your loved ones on your death, should you die before them.
- Get a bigger income if you’re in poor health
You may be offered a higher level of income if you have any health issues or habits which could shorten your life expectancy.
You should be aware it costs more to add on certain features. This means your starting level of income will be less.
What else can I do with a secure income?
- Choose how often you want to be paid
You can tell your provider how often you’d like your income to be paid. This could range from once a month to once a year.
- Take a tax-free lump sum
You can usually take up to a quarter of your retirement savings tax-free*. If you want to take
tax-free cash, this has to be taken before buying a secure income.
*You may be able to take more than this if you successfully applied to HM Revenue & Customs for a greater allowance.
What do I need to watch out for?
- You can’t change your mind
Once you’ve used your retirement savings to buy a secure income, you’re locked in. That means you can’t make any changes – so it’s really important you get things right first time.
- Don’t lose out on any guarantees
If your plan has a ‘guaranteed annuity rate’ it means your provider will guarantee to pay you a minimum level of income for the rest of your life, in return for your retirement savings. This is a rare and potentially valuable feature, so it’s worth checking whether this applies to you.
- Your entitlement to state benefits could be affected
The amount of income and/or tax-free cash you take from your retirement savings could affect your entitlement to means-tested state benefits, this includes such things as housing benefits and council tax reductions.
What happens when I die?
Unless you choose to pass something on to your loved ones, your retirement income payments will stop when you die.
Remember - you can shop around
When you come to buy a secure income, you’re free to shop around. That means you don’t need to stay with the pension provider you’ve been saving with – you can take your savings to the market and see who’ll offer you the best deal.
How does this income option compare?
|Your options||Secure income||Flexible access||Take cash|
|Can I arrange to take a regular income?||Yes||Yes||No|
|Is my income guaranteed for the rest of my life?||Yes||No||No|
|Can I change how much money I receive?||No||Yes||Yes|
|Could my money run out later in retirement?||No||Yes||Yes|
|Can I do something different with my savings in later years?||No||Yes||Yes|
|Can I take some tax-free cash?||Usually up to 25% of your pension pot*||Usually up to 25% of your pension pot*||Usually up to 25% of your pension pot*|
|Find out more|
*You may be able to take more than 25% if you have protected tax-free cash. A financial adviser could help you understand whether this applies to you.
Other useful information
- How will my retirement income be taxed?
- What are my tax-free allowances?
- What will the State Pension provide?