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Pension annuity – income you can count on

How annuities work

An annuity turns your pension savings into a guaranteed income for life. It’s a straightforward way to secure a stable income in retirement – especially if you value certainty over flexibility.

From age 55 (57 from 6 April 2028) you can usually take 25% of your total pension pot tax-free, then use the rest to buy an annuity. If you prefer, you don't have to take the tax-free lump sum, and can use your whole pension pot to buy an annuity instead.

In return, you receive a regular income which is paid out like clockwork, no matter what. It doesn’t matter how long you live for, every single penny is guaranteed – that alone can provide peace of mind.

Once set up, your income is fixed and you won’t be able to change your mind – which is important to consider as your lifestyle and needs will inevitably change. You can choose to tailor your annuity with additional features. This might include having your income rise in line with inflation or another fixed rate. You might even qualify for a higher level of income than usual if you’re suffering from ill health, these are often called enhanced annuity rates.

Key benefits

  • Security
    Your income is paid to you like clockwork, no matter what.

  • Simplicity
    Once your annuity is set up there's no need to manage investments or make ongoing decisions. Your income is paid automatically, providing a regular and predictable payment.

  • Mental clarity
    Knowing exactly what you’ll receive and when can make budgeting easier and reduce financial stress.

Risks and considerations

  • Inflexibility
    Once you’ve bought an annuity, there’s no going back. Your pension savings are committed, and you won’t be able to access them again.

  • Inflation’s impact
    Inflation gradually erodes your purchasing power over time. This means your income might not stretch as far in the future. Although there are additional features you can add on to help manage for this.
     
  • Health and lifestyle
    Your personal circumstances affect the rate you’re offered. If you have certain health conditions or lifestyle factors, you may qualify for a higher income.

FAQs about annuities

Unless you’ve added on specific features to allow this for example a joint-life annuity, annuity payments stop when you die, meaning your partner or family won’t receive any income. To make sure things are tailored appropriately in line with your individual circumstances. Financial advice can help.

It could be particularly useful for covering essential costs like household bills or mortgage payments. However, as with any method of accessing your pension, it won’t be right for everyone. It’s also important to shop around for the best deal and look at your options with different providers.

You can combine an annuity with other approaches – such as taking a flexible income or withdrawing cash – to create a retirement income that works for you.

Need more help?

Income Tax and Tax Relief calculator
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Retirement Contributions calculator
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Retirement Income Planner
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Emergency Tax tool
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Need help deciding?

Choosing how to access your pension is a big decision. If you’re unsure whether an annuity is right for you, speaking to a financial adviser can help you weigh up your options and make a confident choice. They can also help you tailor it with additional features to suit your needs and circumstances.

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