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Why buy an Annuity?

In the UK you are already required by law to buy a retirement annuity if you are 75 years old and have a stake-holder pension or a personal pension plan. When you reach the applicable age your pension and/or insurance company will contact you with the details of your annuity options.

Not all of the money in your pension plan needs to be placed in an annuity. Part of it can be taken out as a tax-exempt lump sum. The rest has to be put into a retirement annuity.

Though a controversial law, it does have its advantages because annuities are the safest and most reliable way to make sure you don’t outlive your assets. It is a secure form of pension income. Just like other financial systems, some risk is involved. However, having a fixed annuity as a part of a pension plan is a good way of making sure that your pension income will last you a lifetime.

Annuities are also considered a worthwhile form of investment by other people. Some types of annuities, like the Equity Index Annuity, can often return a good profit to speculators. The performance of such annuities is tied to the larger financial market, and as is the case in fixed annuities, subject to the effects of inflation as years go by.

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