Take a guaranteed income for life

Once you reach age 55, one of the options you have is to buy a guaranteed income for life (an annuity) with the money in your pension. In 2028, the government is expected to increase the age from which pension benefits can be taken, from 55 to 57.

Things you need to understand about buying an annuity

You can usually take up to 25% of the value of your pension as tax-free cash. Then use the rest to buy a guaranteed income for life (an annuity). Don’t forget, taking a lump sum first will reduce the amount available to buy an annuity, meaning your guaranteed income payments will be lower.

You can usually choose to receive this income at a frequency that suits you. This could be monthly, quarterly, twice a year or annually. There are two main types of annuity – Standard and Enhanced.

The amount of guaranteed income you receive will be based on things like your age, where you live and what kind of annuity you choose. You can use our pension options calculator to see how much you could get. You need to shop around to get the best rate for you.

Benefits

  • An annuity provides you with certainty of the income you will receive for the rest of your life.
  • You can choose an annuity with a guaranteed period or a joint annuity, so you can continue to provide for your loved ones.
  • Your annuity can be set up to stay the same each year, or to increase each year.

Limitations

  • If you don't select these features, an annuity will end at your death and won't be passed on to your beneficiaries.
  • The amount of income you receive will depend on the features you choose, such as a joint annuity.
  • Once you buy an annuity you can’t change your mind even if your circumstances change.
  • If you select additional features such as a joint annuity, this will result in a lower income.
  • The total amount of income you receive could be less than the cost of buying the annuity.

There are two types of annuities you can buy.

Standard

The amount of guaranteed income you get is based on the normal life expectancy of someone like you.

Enhanced

The amount of guaranteed income you get takes into account factors such as your health and lifestyle, which means you may be eligible for an Enhanced Annuity. This may give you a higher level of income compared to a standard annuity.

When you buy an annuity, you can normally take up to 25% in tax-free cash. Any income payments you receive will count as income for tax purposes.

Tax treatment depends on your individual circumstances. Your circumstances and tax rules may change in the future.

Most people ‘shop around’ for car and home insurance. But many people don't know that you can do the same when buying an annuity. You don't have to buy your annuity from us. You can buy it from any pension provider that sells them. Shopping around could help you get more for your money. You can shop around yourself. Or you can get a financial adviser or broker to help you. Visit the government backed MoneyHelper website to find out more. There's also a comparison tool to show you how much you could get from different companies.

If you ask us for an annuity quote, we'll let you know the best deal you can get from all pension providers. All you need to do is give us your consent to share your details with those pension providers. You'll then be able to see if you can get a better deal elsewhere. We can also put you in touch with an annuity broker who is one of Scottish Widows’ strategic partners.

Annuity payments usually end when you die unless you have a joint annuity or one with a guaranteed period. Choosing one of these options means that your regular income will be at a lower level.

Joint annuity

Your spouse, civil partner or other dependant will receive a dependent’s annuity if they’re still alive after you die. This will be paid for the rest of their life. If you die before you reach age 75, their annuity payments will be tax-free. If you die after you reach age 75, their annuity payments will be subject to tax.

Guaranteed period

If you die before the end of the guaranteed period, your annuity payments will continue to be paid until the end of the guaranteed period.

Choosing how to take your money is a big decision. Pension Wise from MoneyHelper is a free and impartial service that helps you understand your options for using your pension. It’s a government organisation that offers clear guidance online or over the phone. To find out more or book an appointment visit moneyhelper.org.uk/pensionwise or call 0800 138 3944.

If you’re unsure or need more help to make sure you know which option is right for you, we recommend that you speak to your financial adviser. If you don’t have one, you can visit unbiased.co.uk to find one. Advisers will normally charge for their advice.

Ready to take your money?

If you’re happy that you’ve considered all your options and understand what’s best for you, you’re ready to take the next steps towards your retirement.

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Have a closer look at your options

Flexible access to your pension savings

You can leave your pension savings invested, and take parts of your pension or withdraw a flexible income when you need it.

Flexible access

Take it all in cash

You can take all of your pension savings as cash.

Take it in cash

Leave it for now

You don't need to do anything yet, you can leave your money invested and make a decision when you're ready to retire.

Leave it for now

You don't have to use just one option. You can combine these options in many different ways to meet your needs. Have a look at our table (PDF, 50KB) to help you compare the options.

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