What is a UK pension annuity?
A UK pension annuity converts some or all of your pension pot into guaranteed income for life. You normally buy it at retirement from an insurance company. Once purchased, the decision is usually irreversible, so it is important to compare rates and options carefully.
Annuity vs drawdown
Annuity income is secure but inflexible. Drawdown keeps your pension invested and flexible, but the income is not guaranteed and the pot can run out. Many retirees use a blend: annuity income for essential bills and drawdown for flexible spending.
Enhanced annuities
If you smoke, take medication, or have health conditions, you may qualify for an enhanced annuity. These can pay more because the provider expects to pay the income for fewer years. Always disclose health and lifestyle details when shopping around.
Shopping around matters
You do not have to buy an annuity from your pension provider. The open market option lets you compare quotes from different insurers. Even a small rate improvement can mean thousands of pounds more income over retirement.