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An income for the rest of your life

At retirement, most people buy an annuity with their pension fund.

With an annuity, you pay a lump sum – your pension fund – to an insurance company or specialist annuity provider. In return, they make regular monthly or annual payments to you for the rest of your life.

When you reach retirement, you can shop around to see who is offering the best annuity rates - you don’t need to buy your annuity from the company you have a pension plan with.

Annuity rates will change from time to time as they are linked to interest rates.

But there are other factors that will influence the annuity rates you’re offered. These include your age and sex – women generally live longer than men so female annuity rates are lower – and whether or not you want your annuity guaranteed for a specific period.

Your annuity payments are counted as income for tax purposes.

There are different types of annuity. The one you choose will depend on your preferences and individual circumstances. Annuity options include;

• Level payments – or increasing payments to help combat inflation
• Monthly payments – or less frequent – quarterly, half yearly or yearly – if you prefer
• Dependant’s annuity – that continues to be paid to your spouse, civil partner or other dependant when you die – either for the full amount or a lower amount
• Guaranteed annuity – where payments are made for a minimum number of years, even if you die

On your death, most annuities stop being paid. If you select a guaranteed annuity or a dependant’s annuity, this will continue after your death.

Depending on your circumstances, you may be able to buy an annuity that pays a higher income. Special annuities include:

• Enhanced Annuities – for smokers and people with certain illnesses
• Impaired life annuities – for people who suffer from a life threatening condition
• Investment linked and with profit annuities – that allow you to continue to benefit from investment growth in your pension fund. There could be risks attached to these annuities

• Annuity alternatives - read about income drawdown

Need some help?

Need some help in organising your retirement plans? Our advice is confidential and without obligation. Call us on 0800 051 1872.