Annuity tips before you buy

If you've been paying into a personal pension during your working life, you'll have been building up a pension fund. There are now three ways you can access this money from age 55. One of the options is to buy an annuity. This is designed to provide you with an income for the rest of your life, no matter how long you live.

An annuity is a way to ensure you get a guaranteed income in retirement.

You may also have paid into a pension scheme with an employer - if this is the case you'll need to find out how to access this by contacting them directly. Unless you have a final salary (defined benefit) pension scheme where you should automatically receive money as an annuity.

An annuity is a way to ensure you get a guaranteed income in retirement. Choosing an annuity is a big decision, as once selected, you cannot usually change your mind. We've put together some tips to help you work through your options.

Things to think about

  • Fixed or flexible income? Your income options and needs - having an idea of what you want to do in retirement and what your financial needs may be will help you determine if you want a secure and regular income for the rest of your life or more flexibility with your pension savings by being able to access them as and when you want to.

  • What you'll need to buy in future - what you spend your money on in retirement may be different to your current needs. For example, your utility bills may rise if you're spending more time at home. When choosing an annuity option, it's important to consider the effects of inflation as it could reduce the spending power of your income in the future.

  • When to buy - if you delay buying your annuity when you retire, you won't necessarily get a higher income in the future because annuity rates can go down as well as up. It may also mean that you are losing out on income that may take longer to recoup than any growth of your fund from leaving it where it is invested.

  • Your health - If you and/or your partner have certain health and/or lifestyle conditions, you could be entitled to a higher income. Different providers may also cover different conditions.

  • The type of annuity you choose - if you want to provide an income for your loved ones after you die you should consider the options such as joint-life or adding a guaranteed payment period or you could do both.  Similarly, the type of annuity you buy could shield you from the negative effects that inflation could have on your income. 

  • The impact on any means tested benefits you receive - Housing Benefit, Income Support, or other benefits might be affected by the annuity you buy.

  • Existing debts - if you have debts, any creditors could have a claim on the money you receive.

  • Check your original pension plan - the type of annuity you choose may impact on any guarantees you have on your pension plan, and could result in you receiving a lower income. Also make sure there aren't any penalties if you retire earlier or later than the date you chose when you took out the plan.

  • Consider topping up your pension pots and/or combining your pension funds to buy an annuity - this could give you a higher income when you retire - but the value could still go down as well up whilst it is invested. Combining funds could also impact on any guarantees.

  • Compare the market - you can buy an annuity from any provider, so you should shop around, and, depending on your circumstances, you may be able to get a higher income elsewhere.

Getting help to decide what's right for you 

We are not recommending a particular retirement option, or course of action, over another. 

In addition to the support we offer, we recommend that, from age 50, you seek impartial guidance from Pension Wise, the free new service from the government that is available on the internet, over the phone or face to face.

Be mindful that investment scams exist and so it's important to be vigilant and carefully check the facts before deciding what to do with your money.

If you are a member of an occupational pension scheme, the options available to you may vary, so please contact your scheme provider.

Need help? Have questions?

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