If you’re knocking on the door of retirement, you may have come across the term “annuity” and may have even researched this.
This article explains the annuity situation on the Isle of Man for people who may be considering taking one out.
As interest rates have increased over the last couple of years, so too have annuity rates, quite significantly, as it happens. This has led to them receiving more coverage in newspapers and online.
A retirement annuity is a fixed income paid for the rest of someone’s life by an annuity provider, usually an insurance company.
Example
Dave is looking to retire and is a member of a local bank’s pension scheme. His monthly contributions have been invested in the pension fund, which is now worth £250,000
By transferring this to an annuity provider, they will pay him, let’s say, £15,000 for the rest of his life, whether that turns out to be 1 year or 50 years. Nice and simple….happy days….. well, not quite, I’m afraid!
Bursting Dave’s bubble
I met with “Dave” a few weeks ago, which prompted me to write this article.
He’d spent several nights researching annuities and the different rates available from various life companies on the internet. He needed my help with a few technical points he’d stumbled across.
However, things are sometimes different in the Isle of Man!
Unfortunately, I was soon to burst Dave’s bubble by telling him there are no annuity providers in the open market on the Island. Therefore, this option would not be available to him.
He was disappointed to hear this, especially after spending so much time on UK websites researching.
He said that one of his friends had recently retired and had taken out an annuity with Aviva IOM. This got to the crux of the issue.
Currently, if you have a work or personal IOM pension with Aviva, or certain other companies such as the Pru and Phoenix Life, they will offer you a lifetime retirement annuity.
Aviva has historically been the dominant provider of work-based pensions on the Isle of Man. However, if you don’t have an existing Aviva pension, you cannot take out an annuity with them.
Other options
As a small Island with our own pension/tax laws and regulations, we don’t always have access to the same choice of products and providers as people in the UK.
Sometimes, we are just too small a market for big UK companies to consider dealing with us. The issues with credit cards on the island have been well documented, for example.
If you are approaching retirement and need to use your pension to provide an income (as most people do), we must work with the other available options. This is primarily what’s called “income drawdown”, or for certain pensions, you can encash it all in one go, subject to tax.
With income drawdown, your money remains invested in retirement, and you take withdrawals from the pot. If you overdo the withdrawals, for example, if you’re 55 and start taking 15% each year from it you’ll soon blow the pot to bits.
This is, therefore, the main difference between annuities and income drawdown.
An annuity will pay a set income no matter how long you live. With income drawdown, the pot can potentially run out. Therefore, you must use it sensibly, with a clear plan that a financial planner can help you with.
If your circumstances sound like Dave’s, please feel free to contact us.
Our friendly Chartered Financial Planners will be happy to help in a way that doesn’t completely overwhelm you at this important stage of your life!
🚀 Retirement Ahead? Confused about annuities? Our new article breaks down the annuity situation on the Isle of Man, with real-life examples like Dave's story. Get informed about your options! #RetirementReady Share on X