How to buy an annuity

Buying an annuity is an important retirement decision, so it’s worth taking your time. While it might seem daunting at first, the process is more straightforward than you might think.  

In this guide, we’ll take you through each step of buying and setting up an annuity, so you'll know exactly what's involved and feel ready to begin the process.

 

When can you buy an annuity?

The right time to buy an annuity depends on your personal circumstances and where the money is coming from. You can buy an annuity with money from your pension pot, or you can use your savings instead.

With a pension

If you’re using money from your pension pot, you can buy an annuity once you’re 55 years old (this is set to rise to 57 in April 2028). There’s no need to rush into buying an annuity as soon as you turn 55 – if you’re still working or don’t need the income yet, you can wait until you’re older.

You need to have a certain amount in your pension pot to buy an annuity. Different providers have different minimums. With Canada Life, you need at least £10,000 in your pot to buy a Lifetime Annuity or Fixed Term Income Plan (after you’ve taken your tax-free cash).

With your savings

You can buy an annuity without using your pension: you can use a cash lump sum from your savings instead. This option – called a 'purchased life annuity'.

Most providers have a minimum investment requirement. To buy a Canada Life Purchased Life Annuity, you need a lump sum of £10,000 or more to invest.

Choosing an annuity

Buying an annuity is an important milestone when planning your financial future. Following these five steps will help you feel confident that you're making the right choice.

Step 1: Build up your pot

Grow your pension or savings so you have enough money to invest when you’re ready to buy an annuity.

Step 2: Do your research

Take some time to explore your options and get impartial information from resources like Money Helper.
Check your estimated income. As part of your research, it’s a good idea to see how much income you could get with an annuity. 

Step 3: Speak to an adviser

A professional adviser will talk you through your options and make sure you have everything you need to make an informed decision.

Step 4: Evaluate your options

Compare providers, rates and features to find the product that works best for your circumstances and financial goals.

Step 5: Choose your annuity

Time to decide. You’ve done the groundwork, and you’re ready to choose an annuity that works for you.

Ready to talk about your options?

If you’re thinking about buying an annuity, you can find an adviser or get in touch with our friendly Customer Services team.

Buying an annuity

Once you've decided on the right annuity for you, you'll need to follow these steps to buy your annuity.

Step 1: Get a quote 

At this stage you'll need to:

• Confirm the amount you plan to move into your annuity
• Tell your provider how often you want to be paid (monthly, quarterly, every six months or once a year)
• Make sure you're happy with the quote

Step 2: Fill out the application form

On the form you'll need to:

• Add your personal details, and your partner’s details if you are applying for a joint life annuity
• Tell your provider where your pension money is coming from
• Let your provider know if there are any court orders or if you have ever been made bankrupt in a way that affects your pension
• Confirm when you would like your payments to start
• Tell your provider if you have taken tax free cash before or have any special tax protections on your pension
• If you are applying for an enhanced annuity, give your doctor’s details and say how you want your provider to use any medical reports
• Choose who you would like your provider to think about paying if you die and there are any payments or lump sums due
• Read the declaration at the end of the form, then sign the form and send it back with any other documents your provider has asked for

Good to know: While it’s straightforward to set up your annuity once you've sent over this information, it’s not instant. If you’re transferring money from your pension provider to an annuity provider, it can take several weeks before you start receiving payments.

Is an annuity right for you? 

Your retirement plans are unique to you. Before choosing an annuity, it's worth thinking about what matters most:

• Your income needs
• Family situation
• How you picture your retirement years

An annuity could be a good fit if you:

• Are aged 55 or over (or 35 if you’re using savings).
• Have at least £10,000 to invest.
• Want guaranteed income you can count on for life or a set period.

However, it might not be right if you:

• Prefer to have flexible access to your money.
• Want your pension to go to your loved ones automatically when you die.
• Are comfortable with investment risk and want potential for growth.

Remember, you don't have to use all your pension for an annuity – many people split their pot to get both security and flexibility.

How much could you get with an annuity?

The income from an annuity isn't one-size-fits-all. Several factors shape your payments, and understanding these can help you make the right choice for your retirement.

How much money you put in   
The more you invest, the higher your income. A larger pension pot naturally means more coming in with each payment, giving you greater financial comfort in retirement.

Your age when you buy
Generally, the older you are when you buy an annuity, the higher your income will be. That's because your expected payment period is shorter, so providers can offer you more each month.

The type of annuity
Different annuities work in different ways. A lifetime annuity pays out forever, while a fixed term plan gives you income for a set number of years. The type you pick affects how much you'll receive.

Lifestyle choices and health conditions
Providers estimate how long you are likely to live when working out your annuity quote. If they think any lifestyle or health conditions you have may shorten your life, the may offer you an enhanced annuity, which pays a higher income than the normal rate.

Any optional extras
Want your partner to receive income after you’ve gone, or a lump sum to go to a beneficiary? These optional features can give you more protection, but they’ll usually reduce your starting income.

Learn more about annuities 

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