Pension Annuity Advice
Get a Free ConsultationPension Annuity Advice
Should I consider a Pension Annuity?
One option if you have built up a pension pot is to convert it to a pension annuity. A pension annuity will provide you with a guaranteed income for the rest of your life by swapping some of your pension savings for a regualr income.
A pension annuity will give you a regular income, so that you know how much money you’ll have to live on every month. When you retire you will need a plan to ensure that you have enough income to ensure you can live out your life in comfort.
A pension annuity is a product that pays you a regular income for the rest of your life, no matter how long you live. Depending on the annuity that you buy, this can be a fixed amount or increase annually.
How much you will receive will depend on the annuity rates offered by the insurance companies that offer the products. There are various factors that will affect the amount that you will receive:
- The size of your pension
- Annuity rates when you purchase the product
- Lifestyle factors (age, health etc)
- The annuity features you choose
What should you consider about Pension Annuities?
There are various areas that you need to consider ahead of purchasing an annuity and it’s important to take advice, which is something we can help you with. Things to note:
- After you’ve purchased an annuity, and the cancellation period, it can’t be changed.
- Your health details matter; you must give us accurate information and it may provide you with a higher income.
- Any income above your personal allowance from your annuity is taxable. The rate of tax will depend on your circumstances.
- You may get back less in income than the value of the pension pot that you use to buy the Pension Annuity, and there’s no cash-in / surender value.
Enhanced Annuities
In some cases, an underlying health condition could mean you’re offered a higher annuity rate and, so, a higher income. These may be known as an “enhanced annuity” or “impaired life annuity”.
Yet, according to a Standard Life survey, 25% of over-50s incorrectly believe higher rates are given to those without an underlying health condition. A further 37% said they didn’t know how health affected
annuity rates. This misinformation could mean some retirees haven’t disclosed health conditions that could lead to an income boost.
4 useful questions to answer if you decide to purchase an annuity
Do you want to purchase an income for the rest of your life?
As many retirees want to create long-term financial security when they retire, it’s common to choose an annuity that would provide an
income for the rest of your life.
However, in some circumstances, an annuity that would provide an income for a defined number of years could be valuable too – for example, if you had other assets you’ve earmarked for your later years. Alternatively, you might find that a flexible income is better suited to your plans.
Would an inflation-linked annuity be useful for your retirement?
Over a retirement that may span several decades, inflation could have a huge effect on your income needs. Yet, it’s a factor many nearing the milestone overlook.
A report in FTAdviser found that half of savers aged over 40 planning for retirement haven’t factored in the impact of inflation.
High inflation throughout 2022 and 2023 has highlighted why it’s important to consider how outgoings could change. Retirees who didn’t consider inflation might find that an income that provided a comfortable lifestyle just a few years ago no longer stretches as far.
Do you want to provide an income for your partner?
If you’re retirement planning with a partner, the decision of whether to choose a joint annuity could be an important one.
It can be difficult to think about you or your partner passing away, but it’s a step that may ensure the surviving partner is financially secure.
What proportion of your pension would you use to purchase an annuity?
If you decide to purchase an annuity, you don’t have to use all your pension to purchase one – you may choose to leave a portion of savings in your pension to access flexibly or as a lump sum.
As part of your retirement plan, you might want to understand if other priorities could affect how you want to access your savings. For instance, would a long-term retirement goal rely on being able to withdraw a lump sum from your pension in the future?
Martin & Bianca - Beckenham
Martin decided to retire at fifty-five as he had several health conditions over the years and was keen to enjoy his retirement with his wife Bianca who had retired on medical grounds with an excellent final salary pension.
On reaching fifty-five Martin took his tax-free cash, which he planned to use to fund major purchases during his retirement and £1000 per month. After a couple of years taking drawdown and realising that annuity rates had risen Martin decided to take an annuity in early 2024 which gave him just under £1500 per month, 20% more than he had been taking under drawdown.
Martin liked the security that the annuity gave, and Bianca will receive the same annuity if he passes away first
Ian & Carole - Redhill
Ian had been a director of a business in the media events industry, and this suffered significantly during lockdown when the industry shut down.
After taking several contract roles, Ian realised that he needed to start taking an income from his pension to support his and his wife’s lifestyle.
After reviewing the different options, he decided to take an annuity with approximately 50% of his pension income and use drawdown for the rest. This would allow him to have a base income to cover his core expenditures and drawdown income that he could adjust if an interesting contract came in.
The annuity will pay Carole the same income if Ian predeceases
John & Joanne – Tonbridge
John is close to being fully retired and Joane has now retired after many years in business and the public sector, respectively.
Approaching sixty, John and Joanne were aware that annuity rates were high, they were keen to take an annuity with part of their pension income to cover the family daily expenditure.
Due to high annuity rates in early 2025, we were able to secure annuities to of just under £2000 per month. With their final salary pensions they will have more than enough income to support their lifestyles in retirement.
Their annuities pay the same income to each other and if they both pass away in less than twenty years the remainder of the twenty-year period will pay to their children.
I was lucky enough to find Craig’s details on the internet. Craig really goes the extra mile on all aspects of things, as well as providing sound, fulsome and timely guidance on financial products.
– Ben Raynor
Pension Annuity Features:
Guaranteed Income for life. Completely worry free.
Can be a fixed or increasing income, either a fixed percentage or linked to the Retail Price Index (RPI)
You can choose to support your loved ones after you die. This can be linked to a guaranteed minimum payment period. Were you to die within the minimum payment period the annuity would continue to pay out to a chosen beneficiary.
Other things to think about with Pension Annuities:
A pension annuity isn’t something that can be changed. Once the cancellation period ends, then the decision that you’ve made are permanent.
Depending on how long you live for, you might not get back as much as you paid for the Pension Annuity product
The income is taxable, depending on your total income above your personal allowance will depend how much tax you will pay.
Once you’ve purchased the annuity, there is no cash-in value.
Is a Pension Annuity the right product for your circumstances?
Once you’ve read through the information on this page, and you’re considering if a pension annuity is the right product for you, there are some final things to think about:
Are you elible? – You have to be over 55 years’ old.
Do you want security? – A pension annuity provides a guaranteed income for the rest of your life
You want to provide for your loved ones? – You can pick a product which will leave some income for your dependents.
Have some health issues? – You may qualify for an increased income from an ‘enhanced annuity’ product
If you’re interested to discuss your pension and pension annuity options further, please call us on 01732 617 950 to book a free initial consultation.
FREE INITIAL CONSULTATION
Retirement Planning Tools and Services:
- Be sure to download our free guides on pensions and retirement planning here
- Calculate your pension income options with our pension calculator here
- To find out if your pension is going to provide you with the lifestyle you desire upon retirement, get a review from our experienced financial adviser, by requesting a call back here
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 down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.