Turn your pension into guaranteed income with an annuity
See how an annuity can give you a guaranteed income in retirement.
We don’t offer annuities ourselves, but we’ll explain how they work so you can decide if a guaranteed income is right for you.
What is an annuity?
An annuity is a type of insurance product you can buy to give yourself a guaranteed income for a set period, or the rest of your life. You can use some or all of your pension money to set up an annuity.
If you had £100,000 in your pension, you could:
- take £25,000 tax free
- use the remaining £75,000 to buy an annuity.
Annuity providers pool money from lots of customers, which helps them manage risks and offer a range of income options.
What types of guaranteed income annuities are available?
Explore the different types of annuities by seeing how they compare.
Lifetime vs fixed term
Lifetime annuities last for your whole life, fixed term ones have a set period.
Single life vs joint life
With single life annuities, payments stop if you die. Joint life annuities continue to your beneficiary after your death.
Guaranteed period vs value protected
Guaranteed period annuities have a set period and payments continue to your beneficiary if you die. With value protected, your beneficiary gets back what you paid, minus income already taken.
Level vs escalating
Level annuity means income payments stay the same every year. Escalating means they increase each year to reduce the effects of inflation.
Enhanced (impaired life) vs investment-linked
If you have health issues, an enhanced annuity will give you a better income. Investment-linked annuities allow you to benefit from market growth.
Annuity pros and cons
If you’re still wondering if a guaranteed income fits your needs, check this list of annuity pros and cons.
- They can be helpful if you prefer certainty of market investments.
- They give you a reliable income that doesn’t change unexpectedly.
- They’re simple to manage – once set up, you don’t need to make ongoing decisions.
- There are different types of annuities to suit different circumstances.
- Once you’ve set up an annuity, you can’t usually change or cancel it.
- It can feel overwhelming to compare providers – an annuity guidance service or adviser could help.
- You can’t change the amount you get, even if your circumstances change.
- Your income may be lower than you’d get with a market-invested option.
- If you die early, you might not have made the most of your money.
- For most types of annuities, no money is passed to your family if you die.
How to buy a guaranteed income
To buy an annuity, you’ll need to move some of your pension money to a provider that offers them.
Here’s how:
- Firstly, you’ll need to know your policy number and the current value of the pension savings in your pension and (if relevant) your flexi-access drawdown account. You can find this information in your online account.
- Contact an annuity broker – either the one we’ve recommended or another. They’ll compare annuity options across the market and arrange for the annuity provider to contact us to complete the transfer.
- The provider you’re transferring to will tell you what to do next.
How to find and compare annuity providers
Shopping around is important. Take your time researching different providers and deals to find the right one for you.
Independent financial adviser
You might find it helpful to get tailored advice from an independent financial adviser.
