Annuity Guide – Tax and Next Steps

 

Check the tax implications of buying an annuity – deciding which retirement income options to take will be one of your most important financial decisions, so ensure you’re budgeting for the tax you’ll need to pay.


Tax on Your Annuity

If you decide to buy an annuity you can still take up to 25% of your pension pot tax free as cash. This doesn’t use up any of your Personal Allowance – the amount of income you don’t pay tax on.

You could then buy an annuity with the other 75%.

You pay tax on income from an annuity, just like you do on your salary. This is because when you’re paying into your pension you get tax relief on your contributions.

If you take the 25% tax-free lump sum you must buy an annuity with the rest or use one of the other pension options.

Scams

Beware of pension scams contacting you unexpectedly about an investment or business opportunity that you’ve not spoken to them about before. You could lose all your money and face tax of up to 55% and extra fees.

Next Steps

  • Ask your provider if your pension pot has any special features that could mean you get a better deal, eg a guaranteed annuity rate.
  • Ask your provider about the types of annuity they offer, eg if you’re in poor health you could get a better rate.
  • Understand how much tax you’ll pay on your annuity income.





Annuity Guide Part 1 – Introduction