What are annuities?

An annuity is an investment which pays out a regular stream of income in exchange for a lump sum. In pensions this usually means using your personal pension pot on retirement to buy an annuity which will pay you income for the rest of your life.

Annuities in the main are supplied by Life Assurance Companies. The underlying ‘annuity fund’ is usually invested in fixed interest investments, such as long-term government gilts in order to maintain the guaranteed income and ensure regular income payments are made to annuitants. Hence when interest rates are low, annuity rates tend to be lower too.

Annuities can be set up to provide different benefits and options:

  • Spouse’s pension (to protect a spouse by providing an income following the death of the annuitant)
  • Guaranteed payment periods; 5 years is typical but longer guarantees are also possible
  • Escalation of benefits; income can be protected from inflation – RPI linked escalation, alternatively a fixed % annual increase in income can be secured at outset e.g. 5%
  • Annuity income can be linked to investment performance for example by a ‘With Profit Annuity’ or ‘Unit Linked Annuity’

Legislative changes

While the increased flexibility in terms of pension income options announced in the March 2014 Budget may mean annuities will be less attractive for some, many will still have the requirement for a guaranteed lifetime income.

The pension fund is exchanged for a pension income. Once the annuity has been bought, the contract cannot currently be reversed; the pension fund becomes the permanent property of the annuity provider.

The level of income that you will receive from an annuity depends upon several main factors including the size of the investment, age, health and the prevailing annuity rates at the point of annuity purchase.

In general, the older an annuitant the higher the income which can be secured.

Whilst an annuity purchase will still be the best option for many people in retirement, it’s important that you take the time to understand the choices available to you before you commit to an annuity.

The importance of seeking professional advice

Eastcote Wealth Management has years’ of experience in this area. We can help you to access the pension options available to you and help you to optimise your pension on retirement. Please be careful with your hard-earned pension savings and think very carefully before cashing them in or moving them. If you’re offered a scheme which seems too-good-to-be-true, it probably is. For further information, see

Please do not hesitate to contact us if you would like to discuss your options in more detail. Remember, we offer a free no obligation consultation and will be happy to help if we can. We take a holistic and long-term approach to wealth management, opting to build a lasting relationship with you and provide a tailored solution for all of your investments.

A pension is a long-term investment. The fund value may fluctuate and can down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Occupational pension schemes are regulated by the pensions regulator.