Pension Annuity

Annuities are financial products that provide you with a consistent income.

What is an annuity pension?

Unfortunately, at the moment in the UK you cannot withdraw the money that you have put aside in your pension once you have retired. Instead, you will receive your pension in consistent payments known as annuities.

However, it is important to mention that from the beginning of the 2015/2016 financial year you will be able to withdraw as much money as you like from your pension when you reach 55. This change will give retired people greater control over how they spend their pension.

The great thing about annuities is that they will give you a guaranteed income once you have retired and escalating annuities are available which increase your income every year to match the rate of inflation.

Types of annuity

When comparing the different kinds of annuities available you will notice that they come in a variety of types:

  • Fixed-Term Annuities: as their name suggests, fixed term annuities will pay out for a predetermined amount of time. At the end of the term you will receive a lump sum.
  • Escalating Annuities: this type of annuity gives you an income that increases every year.
  • Investment Annuities: if you opt for this type of pension the money that you have paid into your pension pot will continue to be invested. This gives you scope of a higher return.
  • Single Life Annuities: these annuities will pay you a yearly income.
  • Joint Life Annuities: these types of annuities are aimed at couples as they will continue to pay your partner if you die first.
  • Enhanced Annuities: these types of annuities will give you a higher income if you should suffer from a certain illness or health condition.

Things to Remember

While annuities are a great way to save for your future, there are a number of potential pitfalls that you should take into account before investing:

You cannot switch annuities. Once you have chosen which kind annuity that you would like you cannot later on switch provider, even if you find a better deal elsewhere. This makes it especially important that you do your research before you sign the dotted line!

A problem with annuity pensions is that if you die before you have received the full value of your pension pot, none of your relatives will inherit of this money. This is because the annuity providers take the left over money from people who die early to cover the costs of supporting those who live longer than expected.

Rates are subject to variation. Rates vary according to both personal circumstances and the performance of the investments that the annuity provider invests your pension pot in.

Top Pension Annuity Providers UK

  • LV= is a popular choice of annuity provider in the UK. LV= offer both a regular pension annuity and Pension Income Plus Annuity. The latter type of annuity is an investment annuity, giving you the potential to increase your income when you retire.
  • Prudential are one of the leading providers of pension annuities in the UK and pay almost £2 billion a year in pension income. They provide regular pension annuity and an Income Choice Annuity which allows you to invest your pension pot for the chance to maximise your income. In addition, the amount of money that you could lose with an Income Choice Annuity is capped. This reduces the amount of financial risk.
  • Legal & General is often a popular choice of pension annuities in the UK. Indeed, the FTSE 100 company currently has more than 760,000 pension customers and has won the Moneywise 2013 Best Annuity Provider award. Legal & General offer a number of options, such as a guaranteed minimum payment period, allowing you to tailor your annuity pension to suit your needs.

Comparison of Top UK Pension Annuity Providers

Provider Joint Annuity Enhanced Annuity Investment Annuity
LV= Yes Yes Yes
Prudential Yes Yes Yes
Legal & General Yes Yes No
Saga Yes Yes No