03 May 2024

Deciding that you want to turn your pension pot into a guaranteed income is only the beginning. Once you’re ready to buy an annuity, you still need to:

  • Look around and understand your options
  • Find the right annuity and decide on any features
  • Make sure you’ve had all the advice and guidance you need and then buy it

We’re going to give you some key pointers to help you through the process of buying an annuity in 2024. We want to help you ask the right questions and get useful answers. And we’ll tell you where to go for any more guidance and advice you need.

Who can buy an annuity?

Anyone aged over 55, with at least £5,000 in their pension pots (after you have taken out any tax free cash), can make an annuity purchase. They’re most useful for people who are looking for the peace of mind that a guaranteed income brings. 

When to buy an annuity

There’s no right or wrong time for buying an annuity. UK savers probably won’t need the guaranteed income an annuity gives them until they start working part time or stop working entirely. It could be better to wait, because providers usually offer better rates as you grow older.

30% rise in annuity rates in two years

Could now be the best time to buy an annuity? We look at what this means for your retirement income.

Based on Legal & General annuity rates, April 2024.

How to buy an annuity

To buy an annuity UK people need to go through several steps, which often include:

  • Building up your pension pot! It might seem obvious, but the more you have saved, the more annuity income you’ll be able to buy
  • Speaking to a financial adviser. If you don’t already have one, you can find one at the Unbiased website
  • If you’re aged 50 plus and want impartial guidance, book a free appointment with Pension Wise
  • Shopping around. Different providers will offer different rates, and different features and benefits – be sure to check them all!
  • Using our online quote service, which will tell you:
    • How much you could get with us
    • If you can get a higher income elsewhere
    • Who you can get it from.

Once you’ve bought your annuity, it will pay out the amount you’ve agreed for the time you’ve agreed. Your payments can go out to you every month, quarter, half-year or year. The money is subject to income tax and might also affect any means-tested benefits you receive. The amount of tax you pay on income from an annuity will depend on your circumstances, and may change in the future.

Should I buy an annuity?

That’s a question only you can answer, because it depends on your goals and circumstances. 

As you make your mind up, you’ll have some important questions to think through. Once you’ve finished purchasing an annuity you can’t make any changes to it, so it’s particularly important to be sure about your answers.

What do you want to happen when you die?

Lifetime annuities usually pay out until you pass away. But after you’ve gone, your spouse or partner might still need looking after.

If you’d like them to keep getting regular payments, you could set up:

  • An income for a spouse, registered civil partner or other financially dependant partner. Your annuity will keep paying out in part or full to whomever you’ve chosen after you’ve died.
  • A guaranteed minimum payment period. Your annuity will pay out for a set period, whether or not you’re still alive. You can usually choose between 1 and 30 years, up to a maximum age of 100 (so for example, if you buy an annuity when you’re 90, you can only guarantee 10 years of payments).

If you’d like them to get a lump sum, you could set up:

  • Value protection. You can protect all or part of the sum you used to buy your annuity. When you die, your provider will pay back the amount you protected, minus any income payments you’ve already had.

Choosing any of these options will probably mean you get a lower regular income. So you’ll need to make sure they’re the right choice for you and your loved one. You can learn more in our article 'What happens to an annuity when you die?' These options apply to a lifetime annuity and differ from a fixed term annuity.

How healthy are you?

Your state of health can make a difference to a lifetime annuity income. As a rule, if you:

  • are living with a health condition, or
  • have one or more lifestyle health risks, like smoking or high blood pressure, 

then you could get an enhanced annuity with higher regular payments. 

How much could I get?

To find out how much you could get, we’d recommend visiting our online quote service. It’ll tell you how much we’ll offer you and let you know of any providers who offer better rates.

The exact income you’ll get from your annuity depends on several factors. The most important ones are:

Your age when you buy the annuity

The younger you are when you buy your annuity, the longer your provider may have to pay you your income. So as a rule, the older you are, the more income you’ll get.

Your state of health or lifestyle

If you’re in excellent health and have a good lifestyle, you’ll probably live longer. In this case your annuity income will be based on a standard rate. If you’re in poor health or have lifestyle risks, you might want to consider an enhanced annuity, which offers a higher annuity rate.

How much money you spend on your annuity

The more money you can put in, the higher your regular payments will be. Your total returns will still depend on how long you live once you’ve bought the annuity and which death benefits you choose.

Whether you want your income to increase

Your payment can increase annually over the life of your annuity, either by a percentage you choose or in line with inflation. If you choose that option your starting income will usually be lower.

Any extra options you choose

Your provider might offer options like protecting some or all of your investment, or switching your payments to a loved one if you die. Again, you’ll pay for them with a lower starting income.

Again, these applies to lifetime annuities and may differ if you choose a fixed term annuity. If you’d like to find out more, you can take a look at our “How much do annuities cost?” article. It digs into the details of the above and gives some examples of how much different kinds of annuities might pay out.

What should I do next?

We hope that’s helped you understand how to buy an annuity.

Now we recommend shopping around to find the right product for you, whether that’s one of ours or someone else’s. Your pension provider might have an annuity of their own, though you don’t have to buy it. Other providers will offer different and possibly better products and rates.  

“We don’t say annuities are right for everyone – because they’re not. But they do have a place in providing people with a foundation level of guaranteed income, which can offer peace of mind and security,” says Lorna Shah, Managing Director, Legal & General Retail Retirement.

You can use our annuity calculator to check your possible income, based on how much you have to spend. We can also put together a personalised annuity quote for you, which gives more details on what you’d get with us, and tells you if you could get a better rate elsewhere. We recommend shopping around to make sure you get the best deal. Other providers may have more appropriate products or be able to offer a higher level of retirement income. 

For more information on annuities, visit the Pension Wise website. It's a free government guidance service from MoneyHelper. If you're looking for a financial adviser, the Unbiased website will help you find one.

And we’d be very happy to answer your questions ourselves – just call us on 0808 159 2762 or visit our Pension Annuity page for more information. Lines open Monday to Friday 9am to 5pm. We may record and monitor calls.

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