Frequently asked questions

Published 29th January 2024

What is an annuity?
An annuity is a financial product that allows you to convert a pension lump sum into a guaranteed regular income. There are different types of annuities available, offering different income levels. It's important to choose the most suitable annuity for your needs. Annuity Ready offers a convenient online tool to compare quotes for lifetime annuities.

What is a lifetime annuity?
A lifetime annuity is a pension option that transforms your pension funds into a regular income for the rest of your life. Choosing the right provider and options is vital, as once you have bought an annuity you can’t change your mind after the 30-day cooling off period. We can help you compare the various lifetime annuity providers on the market.

How does a lifetime annuity work?
In exchange for some or all your pension fund, a lifetime annuity guarantees you a regular income for life. You can take up to 25% of your fund as a lump sum, tax-free. You can buy an annuity with some or all of your fund. If you choose to take tax free cash, you can purchase a lifetime annuity with your remaining pension fund. It's essential to be aware of the tax implications of an annuity. Choose your annuity to meet your specific needs - you might want to consider options such as joint annuity or inflation protection. You can also choose to support your loved ones should you die.

Should I get a lifetime annuity?
If you want the certainty of a guaranteed retirement income, this could be a good option. You can shop around and aren't restricted to buying it from the company you've saved your pension fund with. Annuity Ready's comparison tool lets you explore different providers.

What is a joint lifetime annuity?
A joint life annuity provides a secure income for both you and your surviving named spouse, civil partner or financially dependent partner. It continues paying out part of the annuity to them should you die. It's important to balance the proportion of income for your partner against your retirement income.

Should I get a joint lifetime annuity?
A joint life annuity may be a good idea if your spouse, civil partner or financially dependent partner doesn't have their own pension arrangements. Or if they have a pension that doesn't match their needs. You'll need to consider your income needs, as a joint annuity will usually reduce your income.

Where can I buy a lifetime annuity?
You don't have to buy a lifetime annuity from your current pension provider. It's a good idea to shop around and compare quotes. Some providers offer different rates, options and benefits. Annuity Ready can help get quotes from all annuity providers on the open market, allowing you to explore different options.

Is an annuity the same as a pension?
No, an annuity is not the same as a pension. A pension fund is a savings vehicle for retirement, whereas an annuity is a financial product purchased with a pension fund. It provides a regular, guaranteed income.

Is my money safe in an annuity?
Once you've bought a lifetime annuity it guarantees an income for life, no matter how long you live. There are alternatives, but some of them need active fund management. Find more information on the safety of annuities in our comprehensive guide, 'Are annuities safe?'.

Can I use my annuity to pay for care home fees?
An immediate needs annuity can help to pay for care home fees. In exchange for a lump sum, you can buy an annuity that is then paid to the registered care provider. It's worth thinking about how you'd cover the rising cost of care over time so that there isn't a shortfall.

What is an enhanced annuity?
An enhanced annuity is for people with certain medical conditions. This can include being overweight, being a smoker and/or suffering from certain diseases. It offers a higher income compared to a standard annuity, lasting all your life, even if your health gets better.

What medical conditions qualify for an enhanced annuity?
It is generally conditions that reduce your life expectancy. This can include obesity, smoking, cancer and more. We can compare lifetime annuity quotes for you to see if you qualify for an enhanced annuity rate.

How much income will I receive from my lifetime annuity?
The income from a lifetime annuity depends on factors such as the size of your pension fund, your age, health, and selected options. The younger you are when you buy your annuity, the less is paid out to you. This is why some people choose to wait until they're older to buy an annuity. Having a single or joint annuity can also impact the income you receive. Options like death benefits or choosing to have an annuity that matches inflations also affect the income. We can help you to compare rates from our whole of market panel of providers to find the most competitive offering.

How much do annuities pay?
The amount of annuity income depends on the rate offered by the selected provider and the options you've chosen. Our lifetime annuity calculator can help you see what your pension fund could buy for you.

What happens to my annuity when I die?
Standard single lifetime annuities end upon your death. You can take out options such as value protection or guarantee periods to provide continued income to beneficiaries. If you choose a joint annuity, it will pay out to your chosen named spouse, partner or financially dependent partner after you die.

What is a guarantee period (also known as a minimum guaranteed payment period)?
A guarantee period is an option you can add to some annuities. It's a death benefit that means payments will be made to a beneficiary for the period chosen, should you die within that time. The period can be set from 1 to 30 years, although 5 or 10 years is most common. If you choose 10 years and die after 5, the annuity would be paid out for another 5 years. Longer guarantee periods can reduce your annuity income.

What is value protection?
Value protection, also known as capital protection, lets you protect all or part of the pension fund you use to buy your annuity. After death, a lump sum is paid out for the protected amount, with deductions for income payments already made. Many providers won't let you combine value protection with other death benefits.

How does value protection work?
The amount paid out is the difference between the amount you've chosen to protect, and the income you've already had from the annuity. If you've protected £100,000 but have only received £20,000 before you die, £80,000 is the lump sum your beneficiaries will receive. Nothing is payable if you've already received more than the protected amount.

What does value protection cost?
The cost varies depending on your age, health and medical history. Value protection will lower the income from your annuity, so it's a good idea to get more than one quote.

Should I choose to protect my annuity?
It depends on your needs, the level of income you want and also the needs of your beneficiaries. Value protection and guarantee periods are most valuable if you die in the early years of your annuity plan. They can offer important financial support to others after your death, so it's worth considering their needs and yours.

How much money do I need to start an annuity?
It depends on the provider. Some offer them from as little as £5,000.

Do annuities earn interest?
Annuities do not earn interest. Annuity rates don't fluctuate with the Bank of England Base Rate. You can choose options for the annuity to increase over time. These include keeping up with inflation or rising by a fixed amount. By choosing to increase your annuity, you'll receive less income at first.

What is the maximum age you can buy an annuity?
Anyone aged over 55 can buy an annuity. The minimum age is increasing to 57 in April 2028. The upper age limit can depend on the type of annuity. We can help you compare rates across the market, as different providers have different age limits.

When is the best time to buy an annuity?
You can access your pension funds from the age of 55 without retiring. The older you are when you buy your annuity, the higher income you'll usually get. Changes in the market may affect future annuity rates as well as your pension fund.

Are annuities taxable?
Annuity income payments are subject to income tax. The annuity provider deducts tax based on your tax code. You don't have to pay National Insurance contributions. We have a useful guide to how annuities are taxed.

How many annuities can I have?
There is no limit on the number of pensions or annuities you can have. Each pension fund can be used to buy a separate annuity. This gives you flexibility to have different options in each annuity.

Can annuities be transferred?
Annuities are personal and cannot be transferred. Joint life annuities do transfer to your named spouse, partner or financially dependent partner when you die. Lifetime annuities usually have a cooling-off period of 30 days.

How often are annuity income payments made?
This depends on what you choose when you buy your annuity. Payments can be monthly, quarterly, half-yearly, or annually. The frequency can't be changed once payments have started. How you choose to be paid can affect the amount of income. Often, you'll get more if you choose annually rather than monthly. You'll often receive less is you're paid in advance rather than in arrears.

How long does it take to get money from my annuity?
Upon deciding to buy a lifetime annuity, your current pension provider releases the funds to the annuity provider. The annuity should be set up within 30 days, and the first payment is made according to your selected payment options.

How do I get advice about annuities?
We can offer support through our guides, although we don't provide financial advice. For impartial guidance and detailed information, we recommend Pension Wise from MoneyHelper. They offer tailored guidance, information on tax implications, and details on various options. It's backed by the government, so the guidance is impartial. If you want specific retirement advice, you can find an adviser through MoneyHelper.