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Five frequently asked questions about Annuities

We look at the most frequently asked questions about getting a secure income in retirement, and explain why it’s worthwhile getting an annuity quote. Plus, how you have a chance to win 1 of 5 £175 Fortnum & Mason hampers (terms apply).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Recent market volatility may have left some pension savers with less appetite for risk, and looking for more security as they approach retirement.

Over the last few years, annuities (which provide a guaranteed income for life) have become the less popular retirement option, with a rise in people choosing to keep their pension invested and taking an income as and when they need to.

Making this decision means your income is at the mercy of the stock market, and can go up and down. If the markets crash, so might the value of your pension.

With an annuity it’s a different story. You don’t have to worry about the ups and downs of the market – your income is guaranteed no matter what happens.

So despite low rates, annuities may seem more attractive than ever.

This article isn’t personal advice. Annuity rates can go up and down and quotes are valid for a limited time. You should seek free guidance from Pension Wise about your retirement options and, if you’re still unsure what to do, get personal advice.

1. What happens to my annuity after I die?

The question on most peoples’ minds is whether an annuity can be passed onto their loved ones. The answer – yes.

You can build in options or further guarantees into your annuity so it will pay out to your loved ones even after you’re gone - and sometimes even tax free. Options and guarantees include:

  • Joint life - you can choose how much of your annuity income will continue to be paid to your loved one (usually a spouse or partner) if you pass away first. The more income you choose to pass on, the lower your yearly annuity income will normally be.
  • Guarantee periods - annuity income is paid for a lifetime, but you can also choose for it to be paid for a minimum length of time. If you die within this time the income will continue to be paid to your estate or loved ones for the rest of the period. Usually, the longer the period the less annual income you’ll get, but it could mean more is paid out overall.
  • Value protection - you can choose for your loved ones to get a lump sum of the original amount you used to buy the annuity, less any income already paid out. Choosing this option will mean that all the money you used to buy the annuity will be paid out no matter what, but your annual income will normally be lower.

2. Do I have to use all of my pension to buy an annuity?

No. And using all of your pension to buy an annuity might not necessarily be the best option for everyone. It’s important to consider that your situation might change, and that an annuity can’t usually be cancelled or amended.

You could consider using a mix of options to help you find the right balance of secure and flexible income to meet your changing needs. For example, as you ease into retirement, you could buy an annuity with some of your pension to help cover essential costs, and keep the rest invested. You could then top up your income when you need to by making flexible withdrawals from your investments.

As time goes on and your situation evolves, you might want to secure more guaranteed income. You may also find that you can get a higher annuity later on. Often rates are higher the older you get, and certain health conditions which may develop mean you could get more for your buck. This is an enhanced annuity, and you could get one if you disclose details about your health and lifestyle. Even confirming how much you drink, or your height and weight could mean you’ll qualify for a higher income.

Need help choosing how to take your pensions?

3. How do annuity providers confirm details about my health?

Annuity providers can ask for medical reports from your doctor to verify any claims made when purchasing an annuity, so make sure you complete your application as accurately as possible.

4. How are annuities taxed?

You can normally choose to take up to 25% of the amount you use to buy an annuity tax-free. Then any annuity income will be taxed as earned income so it will depend on your other sources of income in each tax year.

In the current tax year (2020/2021) most people benefit from a personal allowance of £12,500. This is the amount of income you don’t have to pay tax on. If your total income is less than this you’ll normally have no tax to pay. Anything over this amount will normally be subject to tax at your marginal rate.

5. How do I go about buying an annuity?

You need to be at least 55 (rising to 57 in 2028) before you can use your pension to buy an annuity.

Shopping around for the best annuity rate is critical. The difference between the best and worst rates can be significant, and it’s unlikely that your current provider will offer you the best deal. Getting quotes is a good starting point to help you understand how much secure income you could get.

Our online annuity tool will shop around for you, and give you instant quotes from across the market in minutes.

Get annuity quotes

All you need to do is answer a few questions about you and your pension. Even if you’re not set on getting an annuity it’s worthwhile getting a quote. Quotes are free, there’s no obligation to go ahead and it will help you keep an eye on ever changing rates.

Your chance to win 1 of 5 Fortnum & Mason hampers

Products may vary from image shown

If you get a quote by 29 June 2020, we’ll automatically enter you into our prize draw for a chance to win 1 of 5 £175 Fortnum & Mason hampers. After all, yes, summer might be a little different this year but, there’s no reason you can’t still enjoy a good old fashioned picnic. Terms apply.


If you decide to go ahead with your quote, you can call us on 0117 980 9940 to get an application. Once you complete your application we’ll set up your annuity for you.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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