What's an annuity?

Many schemes let you take your pension income any time between ages 55 and 75. When you first took out your pension, you probably nominated a specific retirement age, such as 60 or 65. If so, it's unlikely you would be held to that, but if you're retiring early, check that it won't cost you anything.

The income you'll receive from your pension will depend on a number of factors such as your age, health, the size of your pension fund, the annuity options you select and the rates on the day you buy it. You might also want to receive some of your pension as a tax-free cash lump sum.

You may also be able to take all of your pension as a partly taxable cash lump sum, normally, if you are aged between 60 and 75 and the total of your funds is £18,000 or less in tax year 2011/12.

Throughout this guide we'll show you what your annuity choices are, so you can start to think about which one will be best for you.

Regulations no longer require you to buy your pension annuity by your 75th birthday, however, this will still depend on scheme rules or the contract terms of your pension scheme. If the funds remain invested in a pension fund after your 75th birthday there could be a tax charge, if you were to die or take a lump sum due to serious ill health, before you choose to secure a pension annuity.

You might choose to keep your money invested and take out an 'income drawdown' plan, until you're ready to buy your annuity. This involves drawing an income direct from your pension, and is generally for people with larger funds or other sources of retirement income that may be willing to take a higher degree of risk with their money.

For this reason it's only available through a financial adviser.