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An annuity converts your pension fund into retirement income. Shop around for the best deal as, once purchased, you can't change your annuity provider.
When you approach retirement age, you will have to decide what to do with the pension fund you’ve built up. The most common option is to buy a lifetime annuity (commonly referred to as just an annuity).
This converts your savings into an annual pension, giving you a guaranteed income payable for life, or for a specified period of time.
Your pension income will depend on several different factors, including:
Annuities have had some bad press, as fees can be high, but they’re still the best option for the majority of people. It’s vital that you shop around for the best value annuity though, as once you’ve bought your annuity, you can’t change it.
Different types of annuity suit different people’s needs and circumstances. If you’re in a couple, think about whether you want a single life annuity just for you, or a joint life one that will pay out to your spouse or partner after your death (usually at a lower rate).
You can also choose between a level annuity, escalating annuity, or inflation-linked annuity.
Start by checking what your pension provider is offering you, as they may offer a higher payment rate than those available elsewhere. But you don't have to buy from your pension provider and can shop around for the best annuity deal. This is known as the open market option.
Contact the Pensions Advisory Service for free information and guidance about this.
Age UK also offers an annuity service, provided by Premier Retirement Services, that can help you shop around for a better rate. Call 0845 600 9269 for a quote.
If you’ve had several jobs during your working life, you may have multiple ‘small pots’ of pension funds and be wondering what to do with them.
As of April 2012, you can cash in up to two pension pots of less than £2000 and take the money, rather than being forced to purchase an annuity with them. This is known as trivial commutation.
Find out more about annuities, including the different types available, on the Money Advice Service website.
Set your location to see what Age UK offers in your local area.
The pension calculator is a pre-retirement planning tool and can help you plan ahead.
The Pension Service provides details of state pensions‚ including forecasts and how to claim your pension.
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Most downloads on this website are PDFs. We use this format to ensure that the document looks the same on everyone’s computer (website pages, by contrast, appear differently depending on how people have set their computer up).
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The process is quite straightforward and is free.
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