Regular retirement income for life or for a set period
An annuity is a type of retirement income product that you buy with some or all of your pension pot. It pays a regular retirement income either for life or for a set period.

Annuities – the basics Annuities are retirement income products sold by insurance companies.

When you use money from your pension pot to buy an annuity, you can take up to a quarter of the amount as tax-free cash. You then use the rest to buy the annuity, and the income you receive is taxed as normal income

Lifetime annuities – which pay you an income for life, and will pay a nominated beneficiary an income for life after you die if you choose this option; they include basic lifetime annuities and investment-linked annuities

Fixed-term annuities – which pay an income for a set period, usually five or ten years, and then a ‘maturity amount’ at the end that you can use to buy another retirement income product or take as cash

How much retirement income you will get from an annuity – and for how long

– will depend on:

  • How old you are when you buy your annuity
  • How big your pension pot is
  • Your health and lifestyle
  • Annuity rates at the time you buy
  • Which annuity type, income options and features you choose
  • Where you expect to live when you retire

Once you buy an annuity you can’t change your mind, so it’s important to obtain professional financial advice before committing to one.

Higher income for medical conditions or unhealthy lifestyle

If you have a medical condition, are overweight or smoke, you may be able to get a higher income by opting for an ‘enhanced’ or ‘impaired life’ annuity. Not all providers offer these so be sure to shop around if you think you might benefit from one.

Your other retirement income options

An annuity is just one of several options you have for using your pension pot to provide a retirement income.

Is it time to review your retirement plans?

These reforms present people with an exciting opportunity to take control of their pensions like never before, but the reforms highlight the need to obtain professional financial advice to consider your overall position. Although it may seem counter-intuitive, accessing your pension fund in many cases may be the last asset you call on, given the tax-efficiencies. To review your situation, please call us or use the contact form by clicking here – we look forward to hearing from you.

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