Retirement annuities

What a retirement annuity is and how it differs from other products

A retirement annuity is a personal retirement fund. You open it in your own name, often through an insurer or a fund manager, and you choose the underlying investments. The fund is governed by retirement fund rules, not by ordinary savings account rules.

A tax-free savings account is a flexible savings wrapper. You can withdraw from it, and the tax benefit is that growth is not taxed in your hands. A retirement annuity works the other way: you get relief on contributions, but the money is locked and later withdrawals are treated as income.

A pension or provident fund is usually arranged by an employer. Your membership is tied to that job, and the fund rules are set by the employer and the fund trustees. A retirement annuity stays with you when you change jobs, because you own the contract yourself.

Access and why the money is locked until retirement age

Money in a retirement annuity cannot be taken out at will. The law treats it as retirement money, so access is restricted until you reach the retirement age stated in the fund rules. This is the central trade-off of the product.

The lock is there to protect long-term saving. Because contributions attract tax relief, the state wants the money to stay invested for retirement rather than be used for short-term spending. Early access is allowed only in narrow cases set out in law, such as certain emigration or hardship situations.

At retirement you do not simply take the whole balance as cash. Part of the benefit must normally be used to provide a regular retirement income, and the rules on this are specific. Check the fund's rules before you join so you understand what happens at that point.

What to check in fees and fund choices

Ask for a full breakdown of costs before you sign. Look at the advice fee, the administration fee and the fee charged by the underlying investments. These charges can differ a lot between products and they reduce your long-term return.

Check what you are invested in. Some products place your money in a default portfolio, while others let you choose funds. Look at the investment objective, the risk level and how the portfolio has behaved over time, not just at recent performance.

Ask whether you can change funds and what that costs. Also ask how the product handles a transfer to another provider, and whether any early-termination charge applies. A clear answer to these questions matters more than a glossy brochure.