Below is a short breakdown of the different types of annuities you can purchase:

• Variable – There’s the potential for more earnings, but you also take on more risk
• Fixed – Your investment grows based on a guaranteed rate of return
• Fixed Indexed – The potential for increased earnings is based on index growth, but there is still a downside protection
• Registered Index-Linked – Exposure to downside risk is limited, and there is potential for increased earnings based on index growth
• Immediate – Convert a lump sum of money into a stream of income

Pros of purchasing an Annuity

• There are many different features that can be included in an annuity, but you are able to customise these to your needs. This can include making adjustments to the guaranteed level of income you would like to receive, how much risk you would like to place on the stock market, and choosing how the annuity pays out to your beneficiaries when you die
• Purchasing an Annuity removes the stress of worrying about how much you are taking from your pension pot each month, and if you will eventually run out
• An annuity can be seen as a tax-efficient investment ad any growth in the annuity is tax-free until the payments begin in retirement

Potential drawbacks of Annuities

• A drawback of purchasing an annuity is that they are complicated to understand and can be difficult to know how much money you will require during retirement. Because of the complexity, they can have high fees
• Annuities do not offer much flexibility once they have been set up. Depending on the type of annuity, the owner may have to pay surrender fees to take more money out of the annuity than what they originally agreed on

Is an Annuity suitable for me?

An annuity may be the right option for you if you would like a guaranteed income in retirement and are sure of how much you will need. However, before you purchase an annuity it is important to fully understand the plan fully and all the associated fees. Recently, pension annuities have become a lot more popular, as people want to be extra safe in knowing that their money won’t run out during retirement, particularly due to the market’s recent volatility and uncertainty. It is a way for the investors to be in control of how much income they would like to take, and the risk they are willing to take.