Annuity
What is an annuity?
An annuity is a product you buy with your pension pot that pays you a guaranteed income for life. You hand over a lump sum to an insurance company, and they pay you a regular amount until you die. No matter how long you live, the payments keep coming.
How much income do you get?
It depends on your age, health, interest rates, and the type of annuity. Older buyers and those in poor health get higher rates—they’re expected to claim for fewer years.
As a rough guide, a 65-year-old might get around £5,000-£6,000 per year for every £100,000 used to buy an annuity. Rates change, so shop around.
What types of annuity are there?
- Single life – pays only you, stops when you die
- Joint life – continues paying your partner after you die
- Level – same amount every year
- Escalating – increases each year (but starts lower)
- Enhanced – higher rate if you’re in poor health or smoke
Annuity vs drawdown
An annuity gives security—you can’t outlive it. Drawdown gives flexibility—you stay invested and control withdrawals. Many people use a combination: annuity to cover essential bills, drawdown for extras.
Can you change your mind?
No. Once you buy an annuity, you can’t get your money back. It’s a one-way decision. That’s why it’s important to shop around and consider whether it’s right for you.
Key points
- Guaranteed income for life – can’t outlive it
- One-way decision – can’t get your money back
- Shop around – rates vary between providers
- Can combine with drawdown – security plus flexibility