When buying an annuity, you can usually take up to 25% tax-free and the remainder is used to provide you with a guaranteed regular taxable income for the rest of your life - no matter how long you live.
You can't usually pass on a lump sum to your loved ones when you die, but there are options for providing them with an income. These are called joint life and a guarantee period:
- Joint life - You can choose one person to receive an income when you die. You select the percentage of income they receive - the higher the amount you select the lower the income you'll receive. For example, if you select 50%, you might receive £300 a month and when you die your loved one would receive £150 a month for the rest of their life. If you chose 100%, you'd receive a lower amount, say £200 for example, but when you die your loved one would also receive £200.
- Guarantee period - This option allows you to choose a period of time, usually up to 10 years, which an income is guaranteed to be paid to a loved one for. For example, if you select a 10 year period and you die 5 years after buying an annuity, then an income will be paid to your loved one for another 5 years. If you select a 10 year period and you live for more than 10 years then no income would be paid to your loved one. The longer the guarantee period you select the lower your income will be.
With both of these options, you need to select them when buying your annuity.
Benefits
- You'll receive income on a regular basis – so you know how much money you’ll have coming in.
- The income you receive is guaranteed to be paid for the rest of your life, so it'll never run out.
- If you choose a joint life annuity, you can pass on regular payments to your loved one when you die. These will be paid for the rest of their life.
- Choosing a guarantee period also means an income can be paid to a loved one, but only if you die within that guarantee period.
- If you, or your loved one has (or has had) certain health or lifestyle conditions, you could get a higher income through what’s known as an enhanced annuity.
Considerations
- Once you buy an annuity, you can’t change your mind after the cancellation period.
- You usually can’t leave a lump sum to your loved one.
- Inflation will reduce the value of your income, so your money may not stretch as far in the future (unless you choose an income that increases each year).
- Choosing some of the options – like a 'joint life' annuity, a guarantee period, or payments rising each year – would mean you get less income at the start.
- You might get back less than you paid in, depending on how long you live.
Calculators and tools to help you plan
How much you could get from your pension
Our calculator will help you understand how the options could impact your retirement income. You can use it to understand what your pension pots can provide. It will also show you the buying power of your money by taking into account the effects of inflation.
Please read all of our assumptions to understand how we’ve worked out the amounts.
The results are not a recommendation and not financial advice.
How long your money could last
This planner shows you how taking different amounts of money from your pot can impact how long your money might last. You can input different amounts and see the impact it has.
Launch Retirement Income Planner
How tax could affect your income
This calculator will provide an estimate of how much Income Tax you may pay, depending on how much money you take from your pension. You can input different amounts in the box that asks for your gross salary and see roughly how much tax you might have to pay.
Launch Income Tax and Tax Relief calculator
How much Emergency Tax you might pay
This tool is to show you how much Emergency Tax you might have to pay on withdrawals from your pension pot.
Important Q&As
No. You can use some or all of your pension to buy a guaranteed income for life. We would always recommend that you seek financial advice first.
Yes, unless you select a joint life or guarantee period when first buying the income for life.
No, usually the guaranteed income for life will not be passed on as a lump sum.
No, once you have decided to purchase a guaranteed income for life, you can’t change to another option. There is usually an initial cancellation period though.
No. Normally you have to be at least 55 to buy a guaranteed income for life. But you can buy it at any point after this age. Some providers do have a maximum age for taking an income for life.
This isn't always the case. It’s important to shop around for the best deal from a number of providers.
Other pension options
Take a combination of tax-free and taxable money
(also known as "take some or all your pension as cash")
Take tax-free money from your pension
(also known as "Flexible cash and income or Drawdown")
Need more help?
We know there’s a lot to consider when planning for retirement, and it can be tricky to know where to start. To help you understand all your retirement options, we recommend speaking to your adviser or getting guidance.
Find a financial adviser
Find an independent financial adviser in your area to help you in your future pension planning.
Visit
www.unbiased.co.uk
and enter your postcode.
Pension Wise
Pension Wise is a free and impartial guidance service offered by the Government. They can’t make recommendations or tell you how to invest your money, but will provide information on a range of available pension options.
Visit
moneyhelper.org.uk/pensionwise or call 0800 280 8880 to book a phone or face-to-face appointment.
HMRC
Visit
hmrc.gov.uk to find out more information on tax rules and legislation which may affect you and your pension plans.
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"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at 5 Central Way, Kildean Business Park, Stirling, FK8 1FT. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company Limited. The Prudential Assurance Company Limited and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc which is a holding company registered in England and Wales with registered number 11444019 and registered office at 10 Fenchurch Avenue, London EC3M 5AG, some of whose subsidiaries are authorised and regulated, as applicable, by the Prudential Regulation Authority and the Financial Conduct Authority. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.