What is a Pension Annuity?

An Annuity is where the insurance company agrees to pay the investor a guaranteed income in return for a capital sum.

We are concerned with a Pension Annuity, also referred to as a Compulsory Purchase Annuity, Lifetime Annuity or Open Market Option Annuities.

How it works

This is where you are required to buy an income from the pot of pension money you have saved. It's to provide a regular income in your retirement.

You may choose to have a Single Life or a Joint Life annuity - Joint life will provide your partner or spouse the income should you die before them.

Guaranteed period is also one of the options - you can select the annuity to be paid to you and/or your spouse for 5 years or 10 years - irrelevant of what happens to you.

If you wish, you could select a level income, increase income at a fixed rate or increasing income linked to inflation.

These options will have an impact on your initial annuity rate.

Advantages:

• It provides a known and guaranteed income for the rest of your life, until you die

• You can choose for your income (before tax) to increase at a fixed rate and help offset the impact of inflation

• You also have the option for your spouse/dependents to receive the income after your death.

Disadvantages:

• Your circumstances might change after you take your benefits. E.g if you get married or enter into a civil partnership after you buy your annuity, you cannot add a spouse’s or civil partner’s pension option.

• Once you have bought your annuity you cannot cash it in or switch it to another provider

Minimum fund value: £20,000 (after taking any tax free cash)