Types of annuity
An annuity gives you a guaranteed regular income for as long as you live in exchange for your pension savings. The amount that you are regularly paid will depend on a number of factors, and there are several different types of annuity available, so be sure to pick the right one for your circumstances.
What types of annuity are there?
Overall, there are three main types of annuities: lifetime annuities, investment-linked annuities and fixed-term annuities.
A lifetime annuity is a guaranteed income for the rest of your life – and for your spouse or dependants after your death if you include them when you take out an annuity. Once you’ve purchased a lifetime annuity, there is no risk associated with investment performance, and lifetime annuities come in two 'flavours' – standard annuities and enhanced annuities. Enhanced annuities may offer a higher annuity rate than a standard annuity, if you meet certain health and lifestyle criteria which could shorten your life expectancy.
Fixed term annuity
Fixed Term Annuities pay an income for a set period or until you die, if earlier. They give you an opportunity to keep your options open in case your circumstances change later in retirement.
In return for investing in a pension fund from an existing pension scheme, a fixed term annuity pays a fixed level income for a specific period of time – typically about five years. After that point in time, you can usually choose to reinvest remaining funds in an alternative product.
OK, what should I do next?
If you are interested in any one of these annuities and how they can give you an income, then we recommend you speak to a professional adviser. You'll find professional financial advisers who are local to you on thepfs.org and unbiased.co.uk.
Alternatively, if you're looking to purchase a lifetime annuity, HUB Financial Solutions - part of the Just Group - offers a lifetime annuity comparison service, that could help you make sense of this option.