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Annuity frequently asked questions

General information

  • What is a benefit crystallisation event?

    A benefit crystallisation event (BCE) occurs when you reach age 75, or take benefits (and one example of this is an annuity) before 75.

    When this happens the total pension funds you take (or 'crystallise') will be measured against your remaining lifetime allowance and if this is exceeded a lifetime allowance charge will be imposed.

    You will need to provide details of all your pensions and pension income to allow the calculation to be made.

  • What is an annuity?

    An annuity is a secure income normally paid for the rest of your life.

    During your working life your pension builds up a pot of money. An annuity is the regular income that is bought with your pension fund at retirement.

    Once set up, the annuity is normally fixed and offers a secure income for the rest of your life. As it cannot normally be changed it is very important to consider your options carefully.

    Annuities are also known as 'secured pensions'.

  • Do I have to take tax-free cash?

    No, although it is your chance to take some of your pension tax free.

    If you choose not to take the tax-free cash all your pension fund will be used to provide an income. This will enable you to obtain a higher income, but this will be subject to income tax in the usual manner.

    If you decide not to take tax-free cash, it cannot be taken at a later date.

Buying an annuity

  • Is my annuity rate guaranteed?

    We do everything possible to ensure you get the same annuity rate as when you received your annuity illustration; however annuity companies do change their rates.

    If the funds are not transferred from your pension provider to your annuity company during that guarantee time and the annuity rates have changed, then your annuity will also change.

    It is therefore important that you try to return the appropriate forms and applications to us as soon as possible after receiving them if you are ready to go ahead.

  • How long does it take to arrange an annuity?

    The time taken to arrange an annuity largely depends on the existing pension provider and how quickly they can transfer your fund.

    We estimate a typical annuity takes between six to eight weeks to complete but it could take more or less time than this.

  • Can I get a better rate if I'm a smoker?

    If you smoke regularly and have done so for the past 10 years make sure you declare this when completing a quote as it may mean you qualify for an improved rate.

  • Is there a difference between annuity providers?

    Apart from the differences in the annuity income each provider will offer, there are a number of other aspects you may want to consider (particularly if the difference in income between providers is minimal).

    Financial strength is an aspect that you may want to take into account considering your annuity may need to be paid for 30 years or more. If you obtain a quote from Hargreaves Lansdown, you will be provided with financial information on each annuity provider.

    To see how much annuity income may vary between providers, get a free online annuity quote now.

  • Where can I buy an annuity?

    Shortly before you reach your selected retirement age you will most likely receive an annuity quotation from your pension provider. Many people do not realise that you do not have to take your annuity from that provider and in most cases it will benefit you not to do so.

    Instead you can choose to take the 'open market option'. This means you find another company to provide your annuity, and if you search a number of providers the chances are you'll find a better rate.

    You can obtain annuity quotations directly from some annuity providers. Alternatively, you can use Hargreaves Lansdown's online annuity calculator to search a large number of providers to find a competitive annuity rate. Then if you choose to proceed we'll handle the administration for you. Quotes are free and without obligation.

  • Can I get a better rate if I suffer from an illness?

    Some illnesses or medical conditions mean you can qualify for an enhanced annuity rate.

  • Do I have to purchase an annuity through my existing pension provider?

    No. You will often find that you can obtain a higher retirement income by taking the 'open market option' and purchasing your annuity through an alternative provider.

    Get a free, no obligation open market quote now. This will allow you to evaluate your annuity options and compare the rate offered by your own pension provider to those offered by other providers.

    You should consider staying with your existing provider if they offer you something known as a guaranteed annuity rate, which may pay a higher income than an annuity available elsewhere on the open market.

  • How can I get financial advice?

    We have a team of professional Financial Advisers who are able to provide advice on a wide range of financial matters. View our advisory section or call 0117 317 1690 for more information.

Once set up

  • How safe is my annuity?

    Annuities are generally provided by insurance companies and offer a secure income paid for the remainder of the policyholder's life.

    The financial security of an insurance company is important as the annuity may need to be paid for a period of 30 years or more.

    In this context, Hargreaves Lansdown feels it is important for our clients to be aware of the financial mechanisms in place to protect annuity payments and you will receive details of these when you receive an annuity quote from us.

  • Can I change my mind once I've bought an annuity?

    No. Once you have purchased an annuity you cannot normally change to a different provider or get your money back.

    It is therefore important you consider your options and choices carefully and seek professional financial advice if you are uncertain of the suitability of an annuity, or any investment, for your circumstances. Providers may offer a short cooling-off period where you can cancel.

  • What happens if I die after buying an annuity?

    If you die after taking an annuity then, typically, there will be no further payments or lump sum paid to a beneficiary. However, when purchasing an annuity you can select certain guarantees to ensure benefits continue.

    Guarantee period - You can select a guarantee period when you set up an annuity (for example for 5, 10 or even 30 years). This will mean that should you die within the selected period the income will continue to be paid until that time expires.

    Joint life option - You can select a certain proportion of your annuity income to continue to be paid to your spouse or other dependant upon your death.

    Value protection - If you die before a pre-set age (which used to be 75) and the total gross income paid out is less than the amount of the fund used to purchase the annuity, the balance will be paid less any tax (if applicable).

    Selecting the options above will affect the income you receive from your annuity. The degree to which it is affected will depend on your circumstances. To view a comparison of the different options, please use our online annuity calculator.

    Please note tax rules can change and the value of any benefits will depend on the circumstances of the investor. Find out more about the tax rules that apply to payments from an annuity after death – pensions, death and taxes

Annuity alternatives

  • What is drawdown?

    Drawdown is the process of drawing an income directly from your fund as opposed to using it to buy an annuity.

    Your fund remains invested. It gives you more flexibility although it is higher risk.

    A drawdown policy can be used to purchase an annuity at any time. Hargreaves Lansdown offers a drawdown option in the award-winning Vantage SIPP.

  • Do I have to take an annuity?

    No, not necessarily. When you decide to take benefits (the process of converting your pension pot into an income), there are other options.

    Depending on the type of pension you have, you may be able to make this decision anytime from age 55.

    An annuity is usually regarded as the safest option and this is important. Even taking the pension flexibilities into account, we think most people will still find an annuity the best option.