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Joan

I want to be secure in my old age.

Joan, 65, has a defined contribution pension pot of £25,000 and receives her full State Pension. She also receives £6,000 per year of final salary pension income that she was left from her late husband.

Joan

What Joan wants

I’m worried that my living costs won’t be covered which means I won’t be able to enjoy my retirement. It’s important that whatever happens going forward, I won’t run out of money as I always relied on my husband to look after our finances.


Joan's idea

Buying a secure guaranteed income seems to be the best way to know that I will always have a regular amount going into my bank.


What Joan does

  1. Joan takes one quarter of her pension pot as a tax-free cash sum of £6,250

  2. She uses the remaining £18,750 to purchase a lifetime annuity which will continue to pay the same level of guaranteed income for the rest of her life

  3. Joan receives an annual income of £895. As she pays basic rate tax, she’ll pay £179 a year tax on this income


What Joan gets

Tax-free cash £6,250
Lifetime annuity £895 a year, subject to tax

See how we worked this out

  • State Pension age63
  • State Pension£8,546
  • Pension pot£25,000
  • Other income£6,000 a year
  • Other savingsNone
  • Property value£170,000

Joan's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
State Pension £8,546 a year
Final salary pension £6,000 a year
Total regular income (subject to tax) £14,546 a year
Lifetime annuity (taxed at 20%) £895 a year

Important things to consider

  • Joan has chosen a fixed income from her lifetime annuity, which won’t increase in value. As a result, the effect of inflation will reduce the buying power of the income over time

  • Better deals may be available so it’s important to shop around

  • If Joan lives beyond 21 years of taking out the lifetime annuity, she will receive more money than her pot was originally worth

  • If Joan had any medical conditions or lifestyle health risks she could have received a higher income.

  •  If Joan dies early, she may not receive the full value of her pot

  • Tax payable on the income will be taken off before it is paid out

  • Buying a lifetime annuity is a once and for all decision. Once an annuity is set up and the cancellation period has expired, it can't be changed

  • This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

  • The income tax rates and bands for Scottish residents may be different

  • The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting View - Check your State Pension 

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