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Annuities factsheet

Our free factsheet gives you more information about the benefits of annuities and using our new online annuity service.


What is an annuity?

Securing a guaranteed income in retirement

When you purchase an annuity you exchange some or all of your pension for an income for retirement and the rest of your life. There are different types of annuities available from many different providers but once you make a choice you cannot usually change your mind (although this is expected to change from April 2017), so it is worth reviewing your options before making a decision. Under 2015’s pension changes you are no longer required to purchase an annuity upon retirement, but they remain an excellent option for people seeking a guaranteed income.

The different types of annuity

Although all annuities give you a guaranteed level of income for a set period of time (usually for the rest of your retirement), there are different types of annuity each with their own benefits and advantages. For example, unlike a conventional annuity an enhanced annuity will take your health and lifestyle choices into account when your rate of income is calculated.

What are the different types of annuity?

How are enhanced annuities different?

Enhanced annuities give you a rate of income based on your health and lifestyle. You could get paid more if you have a long-term health condition, take prescribed medicine, smoke cigarettes or regularly drink alcohol. This is because enhanced annuity providers take your life expectancy into account when calculating your rate of secure income, and a shorter life expectancy would equate to less years of payments – and therefore a higher annual income from your pension pot during retirement.


What happens to an annuity when I die?

Normally there are no further income or lump sum payments when you die, although some annuity providers give you options to protect your payments upon death. For example you could choose a guarantee period, which is a minimum amount of time for which payments are guaranteed, or a joint life option where your beneficiaries receive a pre-agreed level of income upon your death.

How much income could I get?

A number of different factors will affect how much income you could get from your pension when you buy an annuity. These range from the size of your pension pot to your age, and from your postcode to your general condition of health. Different providers will also offer varying rates of income, but as you cannot usually change your mind afterwards it pays to use an annuity calculator to compare your options before making a decision.

Find out more about annuity rates

Do I need to use my whole pension fund?

There is no requirement to use your whole pension to buy an annuity. This means part of your savings could be used to purchase an annuity for living expenses, with the remainder held in a SIPP or other pension and available to withdraw through income drawdown or lump sums throughout your retirement.

Find out more about SIPPs

Important information

The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. Therefore we recommend that before any decision is made you receive regulated financial advice or get free guidance from Pension Wise. Find out more about Pension Wise.


Past performance is not a reliable indicator of future returns

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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© Tilney Bestinvest Group Ltd 2016.

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