DANIEL BAINES: After retirement, taxman still takes a bite from your annuity
Many people contribute to a pension fund or retirement annuity, but few understand what happens to these savings when they reach retirement age
If you are saving in a pension fund, you may be wondering how you will be taxed on the amounts that you receive from your fund after you have retired. While many people contribute to a pension fund or retirement annuity while they are working, few people understand what happens to these savings when they reach retirement age.
Most people will take a portion of their retirement savings as a lump sum (this has certain tax implications) and will purchase a living annuity with the remainder of the funds.
If you have a retirement annuity or pension fund you can take only up to one-third of your savings as a lump sum upon retirement and are obliged to buy an annuity with the rest of the money.
Your retirement fund or retirement fund administrator will generally offer the service of setting up a guaranteed or living annuity for you after your retirement. An annuity pays you a monthly salary after retirement.
In a living annuity you need to get the investments and the income drawn correct to ensure that your retirement funds do not run out if you live a long time after retirement...
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