Annuities

What is an Annuity?
An annuity is an investment sold by insurance companies. It is a way of converting a lump sum, usually a pension fund built up during your working life, into an income for the rest of your life. Unlike other investments, it cannot be used up - however long you live.

Why do I need an annuity?
Current legislation dictates that most people must purchase an annuity with their personal pension and stakeholder pension funds between the ages of 50 and 75. Often you can take up to a quarter of your pension fund as a tax-free lump sum, although the exact amount will depend on the type of pension that you have.

It is usually a good idea to take the lump sum from a pension, although there are circumstances when it might be better not to take the lump sum (e.g. if there are high guarantees on conversion to an annuity). Many people invest their tax-free cash elsewhere, either to provide a greater income or for capital growth.