This article explains the basics of annuities in general terms, helping you understand how they work and what factors you could consider when planning retirement income.

An annuity is a contract with an insurance provider where you pay a portion or all of your pension savings, and in return, receive regular payments.

There are different types of annuities, including:

• Lifetime annuity – provides income for the remainder of an individual’s life.
  
• Fixed-term annuity – provides income for a specific number of years.
  
• Enhanced or impaired annuity – may offer higher income for certain health or lifestyle conditions.
• Joint-life annuity – continues payments for a spouse or partner after the original holder passes away.

Each type is designed to provide financial stability in retirement, but the suitability depends on individual circumstances.

• The income from an annuity can vary depending on factors such as age, health, lifestyle, and the size of the pension pot.
• Some annuities include options for increasing payments over time to help manage inflation.
• Once purchased, annuity payments are typically guaranteed and fixed.

It is important to note that annuities are not reversible, and any income received cannot usually be accessed as a lump sum once the contract starts.

Before deciding whether an annuity could form part of a retirement plan, consider the following general points:

• Irreversibility – income from an annuity cannot normally be withdrawn as a lump sum once purchased.
• Income levels – the amount of income can vary between providers and product types.
• Health and lifestyle factors – these may influence potential income levels for certain types of annuities.
• Alternative retirement income options – other methods exist to draw income from a pension, which may offer more flexibility.

Values can fall as well as rise, and past performance is not indicative of future outcomes.

Annuities are often chosen by individuals who want:

• A regular and predictable income to help manage living costs.
• Security in retirement, reducing the risk of running out of money.
• Options to include a spouse or partner in income arrangements.

They can form part of a wider retirement plan, alongside other strategies, but their suitability will vary depending on personal circumstances.

Important Information: This blog is for general information purposes only and does not constitute financial advice. Pension transfers, annuity purchases, life insurance arrangements, and investment decisions carry risk and may not be suitable for everyone. The value of investments can fall as well as rise and you may not get back the amount originally invested.