What is an annuity?
Annuities are a way of using your pension savings to give you an income in retirement. They pay you a regular guaranteed amount for the rest of your life - and you can buy one using the money in your pension fund. Find out more about annuities.
What’s the difference between drawdown and an annuity?
Drawdown and annuities are two different ways of taking money from your pension.
An annuity gives you a guaranteed income for the rest of your life, which could be a regular amount or can be taken as and when you need it.
Drawdown carries higher risks because the money remaining in your pot stays invested, meaning it's value can go down as well as up. However, it offers greater flexibility. Your drawdown pot could run out during your lifetime, so it needs ongoing management. Learn more about the difference between drawdown and an annuity.
Can I transfer or sell an annuity?
No, once you’ve set up an annuity, you can’t change, sell or transfer it.
What’s an enhanced annuity?
An enhanced annuity pays a higher guaranteed income than a standard annuity. It takes things which may affect your life expectancy into account. These include some medical conditions, and lifestyle factors like whether you're a smoker and where you live. Learn more about enhanced annuity.
What happens to an annuity when I die and can I provide for a spouse/dependent?
This depends on the decision you make when you set up your annuity. There are different benefits that you can add to your annuity. You can choose for it to provide an income when you die for someone who currently relies on you financially. You can also guarantee payments for a certain period of time, even if you die during that period. You could choose a value protection option which guarantees that, if you die, we’ll pay a lump sum equivalent to the annuity purchase price, less any payments already made. These features will reduce the income that the annuity will pay. If you choose an annuity to just pay out while you're alive, it'll stop when you die. Once an annuity is set up and your cancellation period has finished, you can't change it.
What happens if I change my mind about buying an annuity?
You have 30 days from the date your annuity starts to change your mind and cancel your annuity. After this point, the annuity will continue for the rest of your life.
Will my annuity change with inflation?
When you buy an annuity, you can choose your income to be fixed at the same level, to go up by a set percentage over time, or to increase based on inflation. You may want to speak to a financial adviser before you make that decision. Having your income increase either with inflation or by a fixed amount, will mean it starts lower and may take a number of years to match what you’d get with a level income annuity.
Find out how much guaranteed income you could get by using our pension annuity calculator.
How is an annuity taxed?
The income you receive from an annuity will be taxed in the same way as income from a job, known as Pay As You Earn (PAYE). You’ll normally get each payment after any tax has been taken off.