What is an Annuity?

In the simplest terms, an Annuity allows you a regular income for the rest of your life after swapping in your pension pot. What you do when you ‘purchase’ an annuity is basically swap you pension pot that has accumulated over the years you have saved for retirement for a guaranteed regular income.

 So How Much Will I Get?

Your annuity income will depend largely on age, gender, medical history and the prevailing annuity rate at that moment in time.

The annuity rate is typically the most important factor in determining your annual retirement income so you will obviously want the annuity rate to be high!

Once you have reached your retirement age, your pension manager will typically contact you with details about the annuity rate they are currently able to offer.

It must be noted that you are not typically bound to your pension provider when you look to take out an annuity.  This is referred to as the ‘open market’ option. Many people decide NOT to accept the first annuity they are offered.

This is very important because many people are simply unaware that they can shop around for a good annuity deal rather than just accept the first offer made to them, which in many cases can be much less competitive than what is being offered by the wider market. With people living longer and longer, the importance of choosing the appropriate annuity is more important than ever. According to Nigel Callaghan of the BBC’s money talk, consumers lose out on about £400mn per year because they make poor decisions with their annuities.        

Once you have taken out your annuity, there is no going back! You have basically sold off your pension to your annuity provider. So it is important to take a lot of time to find the right deal for your future.