An annuity converts your pension savings into a guaranteed income you can never outlive — providing certainty and peace of mind throughout your retirement.
An annuity is a financial product where you exchange a lump sum (usually from your pension) for a guaranteed income that is paid to you regularly — typically monthly — for the rest of your life, or for a fixed period.
Unlike drawdown, where your income depends on investment performance, an annuity rate is locked in at purchase. This makes it ideal for those who prioritise certainty over flexibility, and who want to ensure they can never run out of money in retirement.
Annuity rates depend on your age, health, pension pot size, and the type of annuity you choose. Shopping around at the point of purchase is critical — you don't have to buy from your existing pension provider.
A 65-year-old with a £200,000 pension pot might receive approximately £10,200 per year for life from a level annuity. This is guaranteed — it will be paid regardless of how long they live or what happens in financial markets.
Different annuity types suit different needs — here's a guide to the options available.
Pays the same income every year for life. Provides the highest starting income of any annuity type, but the real value erodes over time due to inflation. Best suited to those with other inflation-proofed income sources.
Income increases each year — either by a fixed percentage (e.g. 3%) or in line with the Retail Price Index (RPI). Offers lower starting income but better protects against rising living costs over time.
If you have a health condition or lifestyle factors such as smoking, you may qualify for a higher income through an enhanced (or impaired life) annuity. Over 40% of people qualify for enhanced rates.
Continues to pay income to your spouse or partner after you die — typically at 50% or 67% of the original amount. Reduces the income you receive but ensures your partner is not left without income.
An annuity is worth serious consideration if one or more of the following apply to you:
Annuities are irreversible once purchased — so it's essential to take independent financial advice before committing. Our advisers will compare your options across the whole market to find you the best rates.
The annuity purchase process is straightforward — but the decisions you make at this point will affect your income for life, so it's worth taking your time.
Contact us with details of your pension pot, health status, and income needs. We search the whole market to find you the best available annuity rates.
Select the features that matter most — level or escalating income, joint life cover, guaranteed periods, and whether to include value protection.
You can typically take up to 25% of your pension pot as a tax-free lump sum before using the remainder to purchase your annuity.
Once your annuity is set up, your guaranteed income begins — paid directly into your bank account every month for the rest of your life.
There is a 30-day cancellation period after purchase. After that, annuities are generally irreversible — which is why taking advice and shopping around before purchase is so important. Some modern "flexible annuities" do offer limited ability to vary income, but these are specialist products.
You can add a "guaranteed period" (typically 5 or 10 years) so that if you die early, income continues to your beneficiaries for the remainder of the guaranteed period. You can also add "value protection" which returns any unused portion of your purchase price to your estate.
Annuity income is taxed as regular income. If your total income (including State Pension) exceeds your personal allowance (currently £12,570), you will pay Income Tax on the excess at the applicable rate. PAYE is operated by the annuity provider, so tax is deducted automatically.
Our advisers compare the whole market to find you the highest guaranteed income possible.
For illustrative purposes only. Not financial advice.