Annuity

An annuity is a contract with a life insurance company that will pay you a guaranteed regular pension income for life in return for a capital sum. The capital sum comes from your retirement fund. You will pay income tax and government levies on the income that you receive.

The amount of regular pension income you will receive depends on:

1. The amount of money you invest in the annuity.
2. If you are male or female.
3. The type of annuity you want.
4. Your age and state of health when you buy the annuity. 
5. The percentage of your investment that the life assurance company agrees to pay you as a regular pension. This is called the ‘annuity rate'

Before buying an annuity, you need to decide:

1. Do you want part of your pension to continue to be paid to one or more dependents after you die?
2. Do you want a pension income that will increase regularly, or one that stays level?

The income you get from your annuity will be less if you choose:

1. An escalating annuity: an annuity that increases each year.
2. An annuity that provides some payment for your dependents after you die.