Annuities frequently asked questions

When you buy an annuity, any pension commencement lump sum (tax-free cash) you take (normally up to 25% of the benefits being taken) will be assessed against your lump sum and lump sum and death benefit allowances. The payment of a pension commencement lump sum is a relevant benefit crystallisation event (RBCE).

Most lump sums and lump sum death benefits paid from pensions are RBCEs and the tax-free element will use up the lump sum allowance and/or lump sum and death benefit allowance.

For most people, the lump sum allowance will be £268,275 and the lump sum and death benefit allowance will be £1,073,100, although if you used lifetime allowance or took pension benefits prior to 6 April 2024, your remaining allowances may be affected.

Learn more about the allowances

Providers may offer a short cooling-off period where you can cancel. But after that, once you have purchased an annuity you cannot normally cancel it, change to a different provider or get your money back.

Therefore it’s 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.

The cooling-off period will be confirmed in the annuity providers’ key features documents, which will be included with your application, or can be requested earlier.

Annuities are provided by insurance companies and offer a secure income for the rest of your life.

The annuity providers on our panel and Hargreaves Lansdown are covered by the Financial Services Compensation Scheme (FSCS). You may be entitled to compensation from the FSCS if Hargreaves Lansdown or your annuity provider cannot meet their obligations. This will depend on the circumstances of your claim.

Eligible claimants are able to make a claim to the FSCS where a provider is unable to (or likely to be unable to) meet claims against it, e.g. it has insufficient assets to make payments. The FSCS would initially look to transfer the annuity to another provider or, if this is not possible, obtain a substitute annuity within the compensation limits. If this is not possible the policyholder will receive compensation under the FSCS. The compensation is 100% of the value of the claim with no upper limit. Further details of the FSCS can be found at www.fscs.org.uk or you can contact them on 0800 678 1100.

You don’t have to take any tax-free cash – instead you can use your whole pension for your annuity. This means you’ll get a higher income, but this will be subject to income tax.

If you decide not to take tax-free cash, you can’t take it at a later date.

If you decide to buy a single life annuity, with no additional guarantees or options, the annuity income will stop when you die. However, there are several options you can choose at the outset to make sure your income continues to be paid to your loved ones after you’re gone.

More about your annuity options

No. There are other options for taking an income from your pension, including drawdown.

An annuity is usually regarded as the safest option though, because it provides you a guaranteed income.

Your pension provider will usually send you an annuity quote just before you reach your retirement age. But you don’t have to take your annuity from your current provider.

You can take an annuity from any provider. And you’ll probably find a better deal that way too.

You can use our online annuity calculator to get quotes from the across the market. If you find a quote that you’re happy with, contact us and we'll explain how to proceed. Quotes from us are free and there’s no obligation.

How long your application takes will depend on how quickly your pension provider moves your pension money to your annuity provider, and how quickly your annuity is set up. On average it currently takes two months, but sometimes can take longer or shorter. We’ll speak to your provider on a regular basis and make sure everything is moving along.

So long as the annuity provider receives your pension money and all outstanding requirements within the quote expiry period the agreed rate will not change. It could change if the transfer doesn't complete in the expiry period. We’ll write to you to ask what you wish to do if the final annuity rate is lower.

Yes. Unlike other insurance products you could actually get more money by providing health and lifestyle details. Even confirming details like your height and weight could mean you qualify for more.

More about enhanced annuity rates