When you think of a pension, you may think of a regular payment you get for the rest of your life. This is one of the options available when you retire. It is called an annuity.
Now that you are retiring, it is time to decide how you want to manage your pension fund. Most people choose to withdraw a lump sum, which has generous tax relief.
But, what should you do with the rest of your fund?
Buying an annuity
One option that is available on all pension plans is to buy a retirement annuity. This is what people usually refer to as a pension. It is where your retirement fund is used to buy an agreed income for you for the rest of your life.
The level of income is based on the value of your pension fund at retirement and the type of annuity that you choose.
How much can I get?
The amount of income you can get will depend on:
- the level of interest rates at the time you buy your annuity
- the size of your pension fund
- your life expectancy at retirement age
- any options you choose for your annuity
Options on your annuity
A basic annuity will pay you an income for the rest of your life but you can build in additional options.
Your income can be increased each year in line with inflation (the rising cost of living) or you can add a second life to your annuity (for example, a spouse or partner). Adding a second life means that an income will be payable for as long as either of you are alive.
Adding options to your annuity will make it more flexible but will reduce the income you get initially.
Tax on your annuity
The money you get from your annuity is treated as income, so you will have to pay income tax, Universal Social Charge (USC), and (if you are under 66) Pay Related Social Insurance (PRSI).