Get a guaranteed income (annuity)

What does a guaranteed income mean?

An annuity pays out a guaranteed income for life or for a set period of time, depending on the product you chose. What that income looks like will vary according to things like your health and lifestyle, market rates and your age at the time you chose it.

You don’t need to use your whole pot to get an annuity. You may be able to take a tax-free lump sum (usually a quarter of your pension pot) and use the rest for your annuity and create an income. An annuity is seen as an income so it may be taxed using income tax rates.

There are lots of options to choose from. We want to help make sure you understand them all, because once you’ve bought your annuity you can’t change your mind.

It’s best to take advice from an independent financial adviser, and make use of the free and impartial guidance offered by Pension Wise which is part of MoneyHelper, the UK government’s free money advice service.

The more information you have before you make a decision, the better equipped you’ll be to make the choice that’s right for you.

The next page tells you more about different types of guaranteed income and the options you need to consider. It also suggests some other options if you think an annuity is not right for you.

Types of guaranteed income

Escalating guaranteed income

Your annuity income will begin at a lower level, but increase each year at an agreed fixed rate or in line with inflation . This will help you keep up with the increasing cost of goods and services.  

Level guaranteed income

Your income stays fixed throughout your retirement. It won’t rise in line with increases in the cost of goods and services because of inflation, so you’ll have less spending power over time. It’s important to remember that when you’re thinking about budgeting your money and the amount you’ll need to live on. 

Enhanced guaranteed income

Also known as impaired, lifestyle or underwritten guaranteed income. These products are available to many people with certain medical conditions or high blood pressure, or who take prescribed medication or smoke. They usually pay a higher income based on lower life expectancy.  

Single and joint lifetime guaranteed income

Single life provides a guaranteed income just for you and the payments stop after your death. Joint life products may offer a slightly lower income, but they provide ongoing payments for a nominated dependant if you die before them.  

Value protection

This option can protect the value of your pension pot. If you die before you’ve received the full value, a lump sum after tax and the payments already made, is payable on death. It’s a way to protect up to 100% of your original pension pot.  

Things to consider

A guaranteed income offers you certainty. You’ll have an income for the period you’ve specified — even for the rest of your life, if that’s what you want. But it’s important to remember there are other factors to think about before you make the commitment:

Shop around

Once you’ve bought a guaranteed income you can’t change your mind, so it’s important to shop around to make sure you get the right product. Remember you don’t have to buy from your current provider — in fact, we strongly recommend that you look at what different providers have to offer to see if you could get a higher income elsewhere. We can help you to shop around and find the best income option for your needs.

We also recommend taking advice from an independent financial adviser, or having free and impartial guidance with Pension Wise at MoneyHelper the UK government’s free money advice service.

Check your pension plan

Start by checking your existing pension plan to see if it has any special features. For example, it might have a guaranteed annuity rate that’s higher than the market rate when you access your savings. In which case, you’ll get a larger income if you stay with your existing provider.

If you have more than one pension plan, you might want to think about combining them into one guaranteed income. Some providers could offer a higher income for a purchase from one large pot than they would for separate purchases from smaller pots.

Your family or dependants

If you want your guaranteed income to benefit family or dependants after your death, you’ll need a joint life product. A single life product stops paying out when you die.

How much could you get?

If you have a defined contribution pension, our pensions calculator will help you estimate the future value of your pension savings and how much income you might be able to get from an annuity. You’ll need information about your pension policy and savings to use the tool.