Emergency Budget 2010 - Defer Your Annuity

Category: Annuities
Date: 7/7/2010

In the 2010 Budget, the new Government announced that it will end the effective compulsion to buy an annuity with your pension by the age of 75.. The precise details of the change are subject to consultation but, in the meantime, there are interim measures applicable to anyone reaching age 75 on or after 22nd June allowing them to defer purchasing an annuity until they are 77.

It is possible that this maximum age will be raised to 80 or even higher within the next year or so.

Despite extensive coverage of this subject, the existing rules around annuity purchase are already very flexible. You can purchase an annuity anytime after your 55th birthday and you do not actually have to buy an annuity even at age 75: it is just that the rules around remaining invested beyond 75 are considered restrictive by many.

Annuities offer a number of benefits if you are looking to provide an income in your retirement:-

• Your income is guaranteed for life, however long that may be
• You always know exactly how much you are going to get
• Your income will not suffer if the stockmarket falls, or if the performance of investment funds is poor
• You can choose to have your income rise in line with inflation, or at a fixed rate each year to protect you against rises in prices
• You can provide a pension that is guaranteed to continue for the life of your spouse if you die

In the light of the proposed changes, you may be tempted to delay purchasing your annuity but you should be aware that, while your money remains invested, you may be subject to adverse movements in the stockmarket or future annuity rates, both of which may reduce the income you will finally receive. Obviously both these factors could move in your favour but this is not guaranteed.

For people with pension funds of less than £100,000 an annuity can offer a level of income and a degree of security that may be particularly attractive in the current climate. By shopping around for your annuity you may be able to increase the income you receive for the rest of your life by 15%. People with medical or lifestyle conditions may qualify for an enhanced annuity which could increase income by up to 40%. These annuities are simple to obtain just by declaring any condition you may have when getting quotes.

In principle, the idea of leaving some funds for your heirs when you die can be very attractive but, as life expectancy is increasing at a rapid rate, foregoing the guarantee of an annuity in order to achieve this, could result in you running out of income while you still have a long time to live. An annuity ensures this cannot happen and is still the choice of the vast majority of people with individual pension funds when they reach retirement.

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