Are annuities worth it?

If you're weighing up your retirement options, you've probably wondered whether annuities are worth considering. It's an important question – and one that doesn't have a simple yes or no answer.

Annuities may not be right for everyone, but they can play a useful role when you’re planning how to make your money last. They provide reassurance that you’ll have regular payments throughout your retirement.

In this guide, we'll look at the strengths and weaknesses of annuities, how they stack up against other options, and how to work out whether they could have a place in your financial future.

How do annuities help?

Annuities offer some clear advantages if you’re looking for a low-risk way to turn your pension or savings into income.

However, there are downsides to an annuity compared to other investment options. Before buying an annuity, consider the pros and cons and how they relate to your circumstances.

Types of annuities

There are various types of annuities designed to meet different needs. Here are three of the most common types of annuities:

Lifetime Annuity

A common option for people with a pension who want peace of mind in retirement. 

• Receive a guaranteed income for life 
• Option for your income to increase over time 
• Choose from a range of death benefits
• Access your tax-free cash 

Our Lifetime Annuity is available to people aged 55 or over with at least £10,000 in their pension pot.

Who it suits

People who want a simple, steady income that lasts for life, so they always know their essential bills are covered.

Learn more about our Lifetime Annuity 

Purchased Life Annuity 

A tax-efficient way to invest a cash lump sum for a set period or for life. 

• Guaranteed income for life or a fixed period 

• No tax on the capital element of income 

• Option to pay benefits on death 

• Choice of income frequency 

Our Purchased Life Annuity is available to people aged 35 or over with a lump sum of at least £10,000.

Who it suits

People investing a lump sum (not from a pension) who want a tax‑efficient, reliable income for life or for a set number of years.

Learn more about our Purchased Life Annuity 

Fixed Term Income Plan 

Not technically an annuity, but it works similarly, providing income for a set period. 

• Choose how long you want the plan to run, from 1 to 30 years

• Get a guaranteed lump sum at the end of the term 

• Reassess your retirement needs at the end of the term

• Decide how money is paid to your loved ones if you die during the term: as a lump sum or regular payments

Our Fixed Term Income Plan is available to people aged 55 or over with at least £10,000 in their pension pot.

Who it suits

People who want income for now but don’t want to commit for life giving them flexibility to rethink their plans later on.

Learn more about our Fixed Term Income Plan 

How do annuities compare to other options?

An annuity is just one way of managing your pension. There are several options to consider, and the right one (or combination) will depend on your individual situation and financial goals.

Drawdown

Drawdown is a way of taking money out of your pension pot, as and when you want, while leaving the rest invested. It gives you flexible access to your money, but it does come with investment risk, as the value of your pension can go down as well as up.

Find out more about the differences between annuities and drawdown

Lump sums

A lump sum is where you take a set amount of money out of your pension. This can work well if you have a specific purchase in mind or want to clear debts, but you'll need to consider the tax implications and ensure you have enough left for your ongoing retirement income.

Taking your pension in one go

This means withdrawing your entire pension pot as a single payment, giving you immediate access to all your retirement savings. While this provides maximum flexibility and control over your money, you could face a significant tax bill and lose the security of a regular income throughout retirement.

The benefits of mixing your options

You don't have to choose just one approach. Many people find that combining an annuity with other options gives them the best of both worlds – some guaranteed income for peace of mind, plus flexibility for unexpected expenses or major purchases.

For example, you might use part of your pension pot to buy an annuity that covers your essential bills, then keep the rest in drawdown for holidays or home improvements. That way, you know your basic needs are covered while keeping some funds available for life's surprises.

Ready to take the next step?

Once you’re familiar with your options, it can be helpful to talk them through with a professional adviser. They can answer your questions and fill in the gaps, so you have all the information you need to make an informed decision.
Learn more about financial advisers 

Learn more about annuities 

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