Pension Annuities

When you retire it’s vital to stay financially secure. Buying an annuity ensures you will have a predictable and steady income for the rest of your life. Annuities have been the traditional retirement choice for many years, and though pension freedom has introduced other options, they remain very useful things to have.

What is an annuity?

An annuity is actually an insurance product. You pay a lump sum to a provider, who in turn agrees to pay you a regular income for the rest of your life (or for an agreed period of time). This income is guaranteed and does not depend on a limited pot of money, so if you live a long time you may get back more than you paid. Current annuity rates are low, so payments can be disappointing, but a financial adviser can help you find the best deal. The big plus is dependability.

Types of annuities

There are many different annuities available on the market, but they all fall into one of two broad categories: conventional lifetime annuities and enhanced annuities.

Conventional lifetime annuity

A conventional lifetime annuity will provide you with a regular income from the beginning of your retirement for the rest of your life. You can also set up a joint lifetime annuity which will continue to pay out to your partner after your death (and vice versa).

Enhanced annuity

If you have a qualifying medical condition which could give you a reduced life expectancy, you may be able to buy an enhanced annuity. This would pay out a higher regular income. Some lifestyle factors (such as being a long-term smoker) can also qualify you for an enhanced annuity.

Talk to your financial adviser about which type of annuity you may be able to buy.

Shopping around for your annuity

Your current pension provider (i.e. the manager of your pension fund) will probably offer you an annuity when you approach retirement age. But remember you are not a captive customer – you are very likely to find a better deal somewhere else. Over the course of a retired lifetime, even a small difference in annuity rates and benefits could make a major difference to your income and security, so don’t just take the first option available.

A whole-of-market financial adviser can search all the annuities on the market to find the one that best suits your needs.

Is an annuity right for me?

An annuity is no longer the only way to take your retirement income. There are now various other options such as pension drawdown, and it’s also possible to combine several options to create a truly versatile retirement plan. This is where a financial adviser can be invaluable, by helping you understand all possible courses of action, creating the best plan for you and putting it into effect.

Find a financial adviser near you.


Questions to ask a financial adviser:

  • Should I buy an annuity?
  • Could I get an enhanced annuity?
  • How much will my regular income be?
  • Could I combine my annuity with other income strategies?
  • Does my annuity come with any additional benefits?