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What is an annuity?

Annuity guide

Tom McPhail, Head of Pensions Research, explains what an annuity is in 60 seconds .

An annuity is a secure, regular income which you purchase from an insurance company using your pension fund when you choose to retire. The insurance company is then responsible for paying you a secure income for at least the rest of your life.

When you retire, up to 25% of your total pension fund can normally be taken as a tax-free lump sum immediately. The remainder can then be converted into an annuity which will pay you a taxable income, any time from age 55. Please be aware tax rules are subject to change and the benefits will depend on your individual circumstances.

Consider your annuity options

When choosing your annuity you can choose the features that suit your needs. For example:

  1. Have the income paid to your spouse or partner after you die
  2. Receive an income that increases each year
  3. Guarantee to have your income paid for at least a set number of years
  4. Choose the

    timing of your payments

View our annuity rate best buy tables

Our annuity rate best buy tables show you the best annuity rates currently available from our panel of twelve leading providers including, Aviva, Legal & General, Prudential and many more.

The tables are updated weekly, however, to get the very latest annuity rates for your personal annuity quote you can use our FREE online annuity calculator .

Shop around for the best deals

Once you have set up your annuity it can't be changed for the rest of your life. You only have one chance to get it right so it's vital you choose your options carefully and shop around for the best annuity rates.

Two very important points to consider

  1. You don’t have to stay with your existing provider when you retire and often they won't offer you the best annuity income.
  2. Different annuity providers offer different annuity rates. The difference between the best and worst can be significant and therefore greatly influence your annual income.

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