Guide to understanding pension annuities

Deciding how to take an income in retirement or semi-retirement

Using your pension fund to buy an annuity for retirement or semi-retirement is a major financial decision.

Annuities can offer a steady, guaranteed income for a fixed period or for life, helping to secure your financial stability. Because this choice is often irreversible, it’s vital to fully understand your options, choose the most suitable type of annuity for your situation and seek professional financial advice.

When purchasing an annuity, numerous features and options are available, allowing you to personalise your retirement income to suit your individual needs and preferences, and those of your loved ones. Taking time to explore these options means you can decide when and how you will be paid, what kind of income security you will have and what level of support you can provide to a partner or dependent after you pass away.

Deciding between single and joint life cover

One of the initial and most crucial decisions is whether your annuity will cover a single life or be a joint
life policy. A single life annuity provides a steady income for your lifetime only and terminates upon your death. This type generally offers a higher income and may be most suitable if you do not have a partner or dependants relying on your financial support.

By contrast, a joint life annuity continues to pay out after your death to a spouse, registered civil partner or another nominated dependant. The ongoing income is typically set at a chosen percentage — often 50% or 25% — of your initial income. This arrangement helps provide financial security for those you leave behind, although it usually pays out less initially due to the extended period it may need to cover. When considering a joint life annuity, discuss with your partner the level of income they might need if you are no longer there.

Exploring different types of annuities available

It’s important to consider the various types of annuities available. The most common options include:

• Lifetime annuities: These provide a guaranteed income for the rest of your life.
• Fixed-term annuities: These pay a guaranteed income for a set period, usually between one
  and ten years, after which you can choose what to do with any remaining pension pot.
• Enhanced or impaired life annuities: If you have certain health conditions or lifestyle factors (such as smoking), you might qualify for a higher income, as your life expectancy
  may be shorter.

Enhanced annuities can make a substantial difference, so always be open and honest about your health and lifestyle during the application process.

Get in touch

For more detailed information, refer to our guide or contact our financial planners to find out how we can help you understand pension annuities, your other income options, as well as your wider financial planning. We're here to help you achieve your desired retirement lifestyle, whilst ensuring your savings have longevivity so you avoid potential shortfalls.  

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TAX PLANNING IS NOT
REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

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