Annuities

What is an annuity?

An annuity is a contract you have with an insurance company or specialist annuity provider, under which you pay them a lump sum and in return they make regular payments to you for the rest of your life.

When you decide to retire, you can get an annuity quote from as many companies as you want – you don’t need to stick with your pension company. This way you can shop around for the best annuity deals.

How much do you get?

The amount of annuity you can buy with your pension fund depends on a number of factors including your age and sex and annuity rates when you retire. On average, women live longer than men so their annuity rates will be lower. Your annuity payments are counted as income for tax purposes.

Annuity choices

With an annuity you can choose how and when you want your income to be paid:

• Level payments – or increasing to take account of inflation
• Monthly payments – or you can usually choose quarterly, half yearly or yearly if you prefer
• Dependant’s annuity – when you die, the annuity can continue to be paid to your spouse, civil partner or other dependant. This can be for the full amount or a lower amount
• Guaranteed annuity – where the annuity is paid for a minimum number of years, even if you die

When you die

When you die, most annuities stop being paid. If you have chosen an annuity with a guarantee period or one that continues to be paid to someone else, this will continue after your death.

Special annuities

Under some circumstances, it may be possible to buy an annuity that pays you a higher income. These special annuity products include:

• Enhanced Annuities – for people with certain illnesses and smokers
• Impaired life annuities – for people suffering from a serious condition that will shorten their life
• Investment linked and with profit annuities – where you continue to benefit from any growth in your pension fund, but there could be risks attached to these plans

• Annuity alternatives - read about income drawdown

Need some help?

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