What is the accumulation phase of an annuity?

6th June 2012

The accumulation phase of an annuity generally refers to the period of time which a person puts into their pension, before the start drawing an income from it. This phase allows a person to put in as much or as little money to a pension contribution as they like within the rules, and in some cases it also allows them to choose how it is allocated. By choosing how the money is invested it can allow an investor to gauge what type of return they are looking at.

The accumulation phase can often allow a person to build up their pension fund without having to pay tax in some circumstances – if they are transferring money between investments they may not have to pay income or capital gains tax on it – and it can therefore be a great way to save towards retirement.

How can my accumulation phase change my final income?

An accumulation phase can allow you to have an impact over how much final income you receive from your annuity. Obviously the more money that you put into your pension pot, the more income that you will be able to generate over a longer period of time, but it’s also the way in which you are able to exercise some type of control over how this money is spent which can really help you.

The affect that it has is also determined by the type of plan that you take out, for example if you take out an immediate annuity then your accumulation phase could be quite small and therefore your income smaller, if you choose to defer your annuity then you could continue to build up this accumulation phase over a period of time and it could be seen as a tax free investment.

Why might I choose to defer my annuity?

You could choose to defer your annuity for a number of different reasons, one of the main reasons that you might choose to defer your annuity is if you want to spend more time in work, or building up your final annuity pot. In this situation, you may choose to look into annuity plans and build up an accumulation period which allows you to grow your annuity income.

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