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Longevity runs in our families and I want us to be secure in our later years.

Duncan and his wife are both aged 66. He has a defined contribution pension pot of £45,000, receives his full State Pension and also has final salary income of £7,000 per year.


What Duncan wants

We want to enjoy our retirement and know that we won’t run out of money. Our parents are in their late eighties and we hope to have a long retirement as well.

Duncan's idea

Buying a secure guaranteed income seems sensible to me as we don’t know how long we will live for, but if my parents are anything to go by, it will hopefully be a long time.

What Duncan does

  1. Duncan takes one quarter of his pension pot as a tax-free cash sum of £11,250

  2. He uses the other £33,750 to purchase a lifetime annuity which will continue to pay the same level of guaranteed income for the rest of his life

  3. Duncan receives an annual income of £1,725. As he pays basic rate tax, he will pay £345 a year tax on this income

What Duncan gets

Tax-free cash £11,250
Lifetime annuity £1,725 a year, subject to tax

See how we worked this out

  • State Pension age65
  • State Pension£8,767
  • Pension pot£45,000
  • Other income£7,000 a year
  • Other savingsNone
  • Property value£185,000

Duncan'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 £7,000 a year
Total regular income (subject to tax) £15,767 a year
Lifetime annuity £1,725 a year

Important things to consider

  • Duncan has chosen a fixed income from his 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 Duncan lives beyond 19 and a half years of taking out the lifetime annuity, he will receive more money than his pot was originally worth

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

  • If Duncan dies early, he may not receive the full value of his 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

  • 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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