Skip to content

What is an annuity?

If you’ve saved into a defined contribution pension scheme during your working life, you will have to decide what to do with the pension fund you’ve built up when you approach retirement age.

One option is to buy a lifetime annuity (often called just an annuity). This converts your savings into an annual pension, giving you a guaranteed income for life or a specified period.

A second option came into force from April 2015, so you don’t have to purchase an annuity if you don’t want to. Instead, if you have a defined contribution pension scheme, you have various options for your pension pot. This may affect your decision on whether to buy an annuity.

These changes do not apply to defined benefit (also known as final salary) pensions, which guarantee an income in retirement based on your salary before you retire.

Annuities explained by Paul Lewis

Paul Lewis, financial expert and presenter of BBC Radio 4's Moneybox, talks about annuities and gives his tips on planning for retirement.

A small favour

All the information and advice we provide on the website is free and completely independent, as is our National Advice Line that is open 365 days a year.

But demand is going up. We are an ageing population and more people than ever are coming to us for support, which is why we need to ask for help.

If you are able to, just a small gift today could help us reach even more older people wherever the need is greatest.

Please support our work

Further information

For more information: Call Age UK Advice: 0800 678 1174

This page was last updated:

Was this helpful?