Guaranteed income for life (annuity)

What is an annuity?

You can use some or all of the money in your pension plan to buy an annuity. An annuity will provide you with a guaranteed regular income for the rest of your life so you'll have the peace of mind knowing that it won't run out before you die. The amount of income you’ll get depends on a few things:

• Your age
• The amount of money in your pension pot
• Your health and lifestyle
• Any options you choose as part of your annuity (such as an income that increases over time).

When you reach 55 (subject to change) you can usually take 25% of your total pension pot tax-free then use the rest to buy a guaranteed income for life. If you prefer, you don't have to take the tax-free lump sum and can use your whole pension pot to buy an annuity instead. Keep in mind that the guaranteed income you get may be taxed.

Your annuity options

You can tailor your annuity to make sure your guaranteed income is right for you. Here are some of the options you could think about.

Keep in mind: It’s important to know that adding more options will reduce your starting income and you won’t be able to change your mind later.

• An increasing income: You can choose an annuity that moves in line with inflation. This means that the value of your annuity can rise or fall to stay in line with rising prices. If you prefer, you can choose an annuity that rises with a fixed increase, so you know how much income you will get over time.
• Get a higher income for poor health: This could be possible if you smoke, have a medical condition or have a certain kind of lifestyle. You could qualify for a higher guaranteed income, which is also called an enhanced annuity.
• Choose how often you receive your annuity: You can choose how frequently you receive your money.
• Provide for your loved ones: You could choose an annuity that provides for your partner, dependent or other nominated beneficiary when you die. This tends to give you a lower level of income.
• Guaranteed payments for a set period: You could pick an annuity that has a guarantee period. This means that in the event of your death during the guarantee period, the income will continue to be paid to your loved ones until the end of that period.
• A lump sum pay out: Depending on which type of annuity you pick, a lump sum could be paid out when you die.