Find out more about the changes to the SIPP regulations
An annuity (or secured income) provides you with regular income, or a pension, over the rest of your life and is usually purchased when you retire from your pension fund.
An annuity aims to replace your salary once you are retired. Usually the earliest you can buy one is when you are aged 55.
Traditionally you buy an annuity using the money saved in your pension fund while you were working.
The income you receive from an annuity depends on factors such as your age, sex, lifestyle and state of health – in short, how long the annuity provider expects you to live. Indeed, it pays to be as honest as possible about your health, as annuities can pay higher retirement incomes to people with some medical conditions.
The income you get from your annuity also depends on whether you want your income to increase each year to keep pace with inflation. The more you want your pension to increase each year, the lower your pension income will be initially.
You can set up an annuity on a single life or joint life basis. Single life annuities pay an income as long as you are alive. Joint life annuities usually pay an income as long as yourself or your partner are alive.
There are two main sources of funding for an annuity:
It is vital that you shop around for the annuity that pays the highest pension to you. If you do not get the best deal on your annuity, you could end up with a pension that is 30% lower than it might have been for the rest of your life. There are various types of annuities to suit people with different lifestyles – here is a brief guide.
Are annuities right for you?
There are advantages and disadvantages of having an income for life, some of these are highlighted below: