If you currently have any type of pension plan such as a personal pension, a buyout bond or Personal Retirement Savings Account (PRSA), when you decide to take your retirement benefits, one of the options you will have is to use your pension fund to buy yourself an income for the rest of your life. This is called an ‘annuity’.
An annuity provides a regular income for the rest of your life, no matter how long you live. You buy the annuity with the money from your pension fund and annuity payments are taxable as income.
It’s important to shop around because different companies will offer different rates for retirement income. The money from your pension fund has to stretch over a long time. Because of that, even the smallest difference in annuity rates can affect your pension income by hundreds of euros a year for the rest of your life. Your financial broker should automatically do this for you and while your pension provider will offer you a rate for your pension income, through an annuity, remember that you don’t have to take the first deal you’re offered.
Annuity rates tend to go up and down quite regularly. This could have a significant effect on your pension income. Once you have bought an annuity, you’re locked into the rate you accept. You won’t be able to change it later on. How much income you will receive will depend on the size of your pension fund; the annuity rates at that time and your age.
A joint life annuity is where you want to add your spouse or civil partner. An enhanced annuity is suitable for people who are in poor health because they may qualify for a higher income than those who are in good health. Some older pension polices offered a guaranteed annuity rate which is usually higher than what is available on the open market.
It is important that you talk to your Financial Broker about the choices you have at retirement and the important decisions you need to make.