How do annuities work?
An annuity is a retirement product that allows you to swap some, or all, of your pension savings for a regular income that’s guaranteed to be paid for life.
Annuities are provided by a handful of insurance companies, and how much you get will depend on the annuity rate offered by the provider at the time, as well as other factors.
Unlike some other retirement options, you don’t need to worry about how much to withdraw or what the stock markets are doing. Your income will be secure and paid to you no matter what happens.
You can buy an annuity any time from age 55 (rising to 57 from 2028). When using the money in your pension to buy an annuity, you can usually choose to have up to a quarter (25%) of the amount paid to you as a tax-free cash lump sum, and use the rest to buy the annuity. The annuity income you receive is taxed as earned income.
Pension and tax rules can change and any benefits depend on your circumstances.
Why use HL's annuity service?
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Find the best rates from the UK’s leading annuity providers. -
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We've won over 190 awards, including Best Buy Pension 2022 from the Boring Money Awards. -
Ongoing support from a team
of retirement experts
We've been helping UK investors for nearly 40 years. -
Trusted by over 1.7 million clients
We're a financially secure FTSE 100 Company, regulated by the FCA.
Everything was done with ease, top marks for service thank you.
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Win 1 of 5 £185
Fortnum & Mason hampers
This summer, be in with a chance of winning a £185 Fortnum & Mason hamper.
If you get a no-obligation annuity quote by 26 July 2022, we’ll automatically enter you into our hamper prize draw.
You must be 55 or over to enter and get a quote. Products may vary from image shown. Terms apply.
Buying an annuity
It’s important you shop around to find out how much annuity income you could get. Your current pension provider is unlikely to offer you the best deal. There are currently five annuity providers in the open market and each one will offer you a different annuity rate.
Our online annuity calculator can help you compare quotes from five annuity providers. Your quote will show you exactly how much income you could get each year based on the annuity options you choose. With quotes there is no obligation to buy an annuity but they’re only guaranteed for a limited period and rates will go up and down in future.
All you need to do is answer a few questions about you and your pension. And if you confirm your health and lifestyle details - it could mean you'll get a higher annuity income.
Factors that affect your annuity income
Many different factors will affect how much annuity income you get. And it’s important to remember, that once you’ve bought your annuity and secured the annuity rate, your income is set for the rest of your life and cannot be changed. Make sure you consider your options carefully. Factors which affect your annuity income include:
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The size of your pension
The more of your pension you use to buy an annuity, the higher your income is likely to be. Although, you may not want to lock your entire pension into an annuity in one go, so buying more than one annuity over time may be a strategy worth considering. -
Annuity rates at the time you buy
Annuity rates determine how much income you could get. They change all the time because they’re linked to gilt yields (the yield made on government bonds) and are particularly sensitive to interest rate changes. If yields are high, you tend to get higher annuity rates. If they’re low, rates can be lower. View our best annuity rates. -
Your age, health and lifestyle details
You’ll tend to get a higher annuity income the older you are. Plus, if you disclose unhealthy lifestyle choices or underlying health conditions it can also lead to more income. Even confirming details like how much alcohol you drink or your height and weight could mean you get an enhanced rate. More on health and annuity rates. -
The type of annuity and features you choose
When you set up an annuity, you can choose for your income to increase over time, to receive monthly or annual payments and if your income should continue to your spouse when you die. More on annuity options.
Balance security and flexibility
Throughout retirement it’s likely that your income needs will change and you might want to access your pension income in different ways.
Combining your options could help you to find the right balance between a secure pension income and flexible withdrawals.
For example, you could use an annuity to help cover essential costs, and use the flexibility of drawdown for your nice-to-haves, or to help you semi-retire.
How much do you know about annuities?
Annuities are one of the most secure ways to access money from your pension. You’ll get a guaranteed income for life, meaning you don’t have to worry about it running out.
There are lots of different factors that could impact how much income you could get, so you need to make sure you fully understand your options before making a decision.
Take this quick quiz to test your annuity knowledge.
Question 1
You have to be at least 65 to access your pension and buy an annuity. True or False?
You can usually access your pension from age 55 (rising to 57 from 2028). You might be able to access your pension sooner if you have a protected retirement age or you're unable to carry out your occupation due to ill health.
Question 2
Up to 25% of your pension can normally be paid to you as a tax-free lump sum before buying an annuity. True or false?
You can normally take up to 25% of your pension as an initial tax-free lump sum. The rest can then be exchanged for a secure lifetime income, which (like all income from your pension) is taxable.
You don’t have to access all of your pension in one go. It’s possible to stagger the process, meaning you can take your tax-free cash in stages too. Tax rules can change and any benefits will depend on your circumstances.
Question 3
Your existing pension provider will always give you the best possible rate. True or false?
Your existing pension provider might not offer you the best rate, so it’s vital you shop around and make sure you’re getting the best deal possible.
You can check what your current provider offers, and if any special guarantees apply, by contacting them. Then take the time to compare their rates against the whole market. Just follow the link at the end of this quiz to compare annuity quotes.
You should remember, once set up, an annuity can’t normally be changed. Annuity rates also fluctuate, so what could be seen as a bad rate today could be a great one in years to come and vice versa.
Question 4
Having a health condition means you could get less for your money. True or false?
In most cases, disclosing health conditions and lifestyle factors could mean you qualify for an enhanced annuity and get a higher income. Last year, nearly 9 out of 10 HL annuity clients qualified. Even common conditions like high cholesterol or blood pressure could make a difference, as could your weight, alcohol consumption and whether you smoke.
Question 5
When you die the income from your annuity will always stop. True or false?
There are options you can build into your annuity which mean your income could continue to your partner or a beneficiary when you die. This will mean your yearly income is reduced, but could mean more income is paid out overall. You'll need to select these options when you apply, and can't change your mind later on.
Our guide to annuities explains the options in more detail – simply follow the link at the end of this quiz to get your copy.
Question 6
You can ask for your annuity income to increase in line with inflation. True or false?
You can choose to get the same amount of income each year, or have an income which increases (either by a set percentage each year or in line with inflation). You'll need to select this option when you apply, and can't change your mind later on. Asking for your income to increase will reduce your initial income, but could protect your annuity’s buying power in the future.
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Download your guide to learn more about the benefits and risks of annuities and the different options you can select. You can also get an annuity quote to see how much income you could get and compare different providers.
Looks like annuity facts aren't your forte - yet.
Download your guide to learn more about the benefits and risks of annuities and the different options you can select. You can also get an annuity quote to see how much income you could get and compare different providers.
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Download your guide to learn more about the benefits and risks of annuities and the different options you can select. You can also get an annuity quote to see how much income you could get and compare different providers.
Guidance, help and advice
Guidance from Pension Wise
Pension Wise is a free, impartial government service for anyone aged 50 or over, with a UK based personal or workplace pension.
It can help you understand what type of pension you have, how you can access your savings and the potential tax implications of each option. But it isn’t financial advice.
Have a question?
Our UK-based helpdesk are here for you six days a week. Our friendly and knowledgeable team are ready to answer your questions no matter how big or small.
Call us on 0117 980 9940
Opening hours
Monday - Friday: 8am - 5pm
Saturday: 9.30am - 12.30pm
Alternatively, view our annuity FAQs.
Retirement Advice from HL
Not sure if an annuity is right for you? Our financial advisers can give advice on your pension options and work with you to:
- Feel confident about when and how to take your pension
- Match all your investments to your personal goals and income strategy
- Help you plan for later life and Inheritance Tax
Remember all investments and any income they produce can fall as well as rise in value. Investment gains are possible, but you could also get back less than you invest.
Retirement Advice from HL
Not sure if an annuity is right for you? Our financial advisers can give advice on your pension options and work with you to:
- Feel confident about when and how to take your pension
- Match all your investments to your personal goals and income strategy
- Help you plan for later life and Inheritance Tax
Remember all investments can fall as well as rise in value. Investment gains are possible, but you could also get back less than you invest.
Terms of the Summer 2022 annuity hamper offer
1. Subject to these terms and conditions, if you obtain an annuity quote using our annuity service (a “Quote”) between 07:00am on 17 May 2022 and 11:59pm on 26 July 2022 (the “Offer Period”) we will enter you into our prize draw (the “Draw”) for a chance to win a hamper worth £185. The Draw is only open to individuals who obtain an annuity quote with us. The Draw is free to enter.
2. To be eligible to win a prize, you must also:
• be 55 or older;
• be resident in the United Kingdom;
• not be an employee of any Hargreaves Lansdown group company or a member of any such employee’s immediate family or household; and
• comply with these terms and conditions.
3. Upon obtaining a Quote during the Offer Period, you will be automatically entered into the Draw. You will only be entered into the Draw once. You will be entered into the Draw on the date you first obtain a Quote during the Offer Period and you will not receive an entry into the Draw for each additional Quote you obtain during the Offer Period. Quotes obtained after the Offer Period will not be entered into the Draw. If you would like to opt out of the Draw, please notify us by calling 0117 980 9940.
4. Details of the terms and conditions of the Hargreaves Lansdown Annuity Service are available on our website at: www.hl.co.uk/terms-and-conditions.
5. There are five hampers worth £185 to be won. Each winning entrant is only entitled to receive one of the five prizes.
6. The winners will be chosen by random draw on 27 July 2022 ("Draw Date").
7. The winners will be notified (using the details provided at entry) either by telephone or, if unsuccessful, by email, before 3 August 2022. Please note, we will need to provide Fortnum & Mason with the winners’ name and address in order to deliver the prizes and we will require the winners’ permission for this. If we don’t receive permission from a winner by 10 August 2022 to arrange for delivery, that winner will not be entitled to a prize and a draw will take place to select another winner.
8. The prizes will be posted to the winners using the address provided at entry and within five working days of us receiving the delivery permission as outlined in clause 7 above.
9. Please note we are required to make available information that indicates that a valid Draw took place. To comply with this obligation, we will send the surname and county of prize winners to anyone requesting this information. If you object to any or all of your surname and county being published or made available, please notify us by calling 0117 980 9940. Please note, we must still provide your details to the Advertising Standards Authority on request.
10. Our decision regarding any aspect of the Draw is final and binding and no correspondence will be entered into about it.
11. Participants are deemed to have accepted and agreed to be bound by these terms and conditions upon entry. We reserve the right to refuse entry or refuse to award the prize to anyone in breach of these terms and conditions.
12. We reserve the right to replace the prize with an alternative prize of equal value if circumstances beyond our control make it necessary to do so.
13. We reserve the right to hold void, cancel, suspend, or amend the Draw where it becomes necessary to do so.
14. Your personal data provided will be processed for the purpose of the Draw and will be used to contact the winners. For details of how HL process personal data generally, please see our privacy policy (www.hl.co.uk/privacy-policy). Please see clause 9 above, with regard to the announcement of winners.
15. The Draw will be governed by English law and entrants to the Draw submit to the jurisdiction of the English courts.
16. The Hargreaves Lansdown Annuity Service is provided by Hargreaves Lansdown Asset Management Limited, which is a limited company registered in England & Wales with company number 01896481 whose registered office is 1 College Square South, Anchor Road, Bristol, BS1 5HL. References in these terms and conditions to “our”, "us" or "we" are to Hargreaves Lansdown Asset Management Limited.