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I want to be certain that I won’t run out of money.

Patricia, 65, has a defined contribution pension pot of £50,000 and receives her full State Pension. She was left final salary income of £30,000 per year from her late husband.


What Patricia wants

My husband looked after all our financial matters so I’d like to be sure that whatever happens going forward, I won’t run out of money. Receiving a guaranteed regular amount would make me sleep sound at night.

Patricia's idea

Buying a secure guaranteed income seems to be the best way to know that I won’t spend my pension pot too quickly.

What Patricia does

  1. Patricia takes one quarter of her pension pot as a tax-free lump sum of £12,500 and uses the other £37,500 to purchase a lifetime annuity

  2. This annuity will continue to pay the same level of guaranteed income for the rest of her life

  3. Patricia receives an annual income of £1,860. As she pays basic rate tax, she will pay £372 a year tax on this income

What Patricia gets

Tax-free cash £12,500
Lifetime annuity £1,860 a year, subject to tax

See how we worked this out

  • State Pension age65
  • State Pension£8,767
  • Pension pot£50,000
  • Other income£30,000 a year
  • Other savingsNone
  • Property value£340,000

Patricia's calculation

Personal allowance (0% tax) Earnings from £0 to £12,500
Basic rate (20% tax) Earnings from £12,501 to 50,000
State Pension £8,767 a year
Final salary pension £30,000 a year
Total regular income (subject to tax) £38,767 a year
Remaining basic rate tax band £11,233
Lifetime annuity (taxed at 20%) £1,860 a year

Important things to consider

  • Patricia 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 Patricia lives beyond 20 years of taking out the lifetime annuity, she will receive more money than she used to buy the annuity

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

  • If Patricia dies early, she may not receive the full amount she used to buy the annuity

  • 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 had 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

  • If you live in Scotland or Wales you may have a different income tax rate or band

  • 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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