Annuities

Sell your pension pot to an insurance company and secure yourself a guaranteed income for life.

What is an annuity?

From the age of 55 you can purchase an annuity by selling your pension scheme to an insurance company which in turn promises to pay you a guaranteed income each year until you die. Traditionally this is a very secure pension option. On the down side purchasing an annuity means that you no longer own your pension pot and your decision is usually irreversible.

Does the downside matter?

It really depends on your circumstances now and what you are hoping to do in the future. The recent pension freedoms mean that you have more choice than ever before when it comes to taking an income in retirement; if you buy an annuity you are usually waving goodbye to this greater flexibility and freedom. And because you no longer own your pot you have very limited options if you want to pass on any of your income when you die.

Can’t I just pass on what’s left from my pension pot?

Unfortunately not. When you sell your pension for an annuity then you no longer have a pension pot, the insurance company gets all of it. You can pass on some or all of the guaranteed income from your annuity when you die, although this will affect your annuity rate.

Back up there…what does annuity rate mean?

Let’s quickly look at how an annuity works. When you sell your pension to buy an annuity the insurance company will offer to pay you a percentage of the value of your pot each year until you die. This is called the annuity rate which can vary depending on a number of factors.

For example: if you have a £50,000 pot and your annuity rate is 10% then you will get a guaranteed £5,000 per year until you die. A decade or so ago this 10% guarantee was not uncommon. Nowadays you are looking at 4-5% as a good return and potentially lower than this, depending on what sort of annuity you choose.

What difference will the type of annuity I choose make?

You have different options which can affect both the terms and the rate of your annuity. You might want your guaranteed income to increase each year in line with inflation, and then pass that income on to your partner when you die; choosing these added benefits will reduce your annuity rate. On the other hand, if you smoke or have certain medical conditions then you might be eligible for what is known as an enhanced annuity; in this case you would get a better annuity rate.

How do I know if an annuity is right for me?

You can find an at-a-glance overview of your income options at retirement here. This should give you a feel for whether an annuity is the right option for you or not. Bear in mind that pensions are complicated and there are a lot of things to consider. And, if cutting down or stopping work is on the horizon then you probably have enough on your plate already.

That’s why it makes sense to ask someone to do all of the hard work for you. And that someone needs to be a regulated financial adviser. It could be that an annuity is absolutely the right option for you. Alternatively, you might be better off to mix and match, using a part of your pension to secure an income for life and taking a more flexible option with the remainder of your pot. Or, perhaps you should steer well clear of annuities. Whatever your situation, we can help you to make the right decision.


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What to look out for?

Shopping around is key if you are thinking about buying an annuity. And it is worth getting to grips with all of your pension options before making any final decisions. Here are a few things to consider and we are only a phone call or email away if you would like us to take care of everything for you.

What type of annuity do you need?

There are lots of different types of annuity out there and you need to be sure that the one you choose will deliver what you need, both now and in the future. Are there health factors to take into account? Do you want the amount of income you receive to increase over time? Do you want your annuity income to be passed on to someone else when you die? These are just a few of the questions you need to consider.Fishes in the see

Are you getting the best deal?

A lot of companies sell annuities and it could be that the first quote you receive, even if it is from your current provider, is not the best deal out there. In fact, the Financial Conduct Authority found that 8 out of 10 people1 who purchased an annuity from their current provider could have got a better deal on the open market.

Do you know what options you have when it comes to taking an income from your pension?

I know we have already said this, and it is worth repeating: take a few moments to understand all of your pension options before making any final decisions. Any regulated adviser should be able to help you, showing you clearly why the option they have recommended is the best one for you, in relation to all the other options out there.


How can we help?

  • We can compare the whole of the market to find the best annuity rate for you.
  • We will review your pension and if we believe that another option is right for you then that’s what we will recommend, clearly showing you why and what the impact could be on your future income and options when you die.
  • We will not charge you a penny to get to this point; we only charge a fee if you agree with our recommendation and instruct us to act on it.
  • Whatever you decide to do with your pension we can make all the necessary arrangements for you and if you decide not to buy an annuity then we can manage your pension, reviewing it regularly.

What could the impact on your life be?

Pension peace of mind Peace of mind, that you will be getting the most out of this thing you have been putting money into for all these years. You now have a lot of options and even if an annuity is right for you, it is well worth making sure that you get the best deal you possibly can.

Call 0800 304 7288 for a friendly chat about your pension

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Frequently asked questions

Can I leave my pension to loved ones?

Yes, it’s usually possible to leave money in your pension to one or more people when you die. Many schemes will let you pass on your savings, and if you receive a guaranteed income your provider may pay a lump sum or an income to your partner. If you’re thinking of buying an annuity then you need to be careful you choose the right one because not all of them will pay an income to someone else when you die.

Find out more

I want a guaranteed income, is an annuity my only option?

If you are one of the lucky people with a company pension that promises a guaranteed income when you retire then it’s likely you already have the right option for you. If you aren’t, then traditionally the only other way to receive a guaranteed income in retirement was by selling your pension fund to buy an annuity. Now, though, there is another way, giving you a fixed income with a level of flexibility that an annuity simply doesn’t provide.

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What is the difference between an annuity and pension drawdown?

If you are thinking of taking an income from your pension then two of your main options are: sell your pot and buy an annuity, or go into what is called pension drawdown. One offers greater security while the other gives you the freedom to take your money as and when you like.

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What is a no obligation pension review?

With this type of review a regulated pension expert will examine in detail your circumstances before clearly and simply advising what they think you should do with your pension. You will not have to pay for this review and you are not committed to follow the advice in any way.

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What are the pension options at retirement?

From the age of 55, the main choices are using your pension to buy a secure income for life, taking money directly from your fund as you need it or even taking the entire amount as cash. The right option for you depends on your circumstances and the type of pension you have.

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What are the new pension rules?

The new pension rules (also called pension freedoms) removed many of the restrictions around how you can take money from your fund; if you are at least 55 years old there is a good chance that you can take as much money as you want. Whether it’s the right thing for you to do or not depends on your circumstances and the type of pension you have.

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Important information

1Published 14 February 2014: www.fca.org.uk/your-fca/documents/thematic-reviews/tr14-02

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