What is an annuity?
A product you buy with some or all of your pension pot that pays you a guaranteed income, usually for life. Certainty is the appeal. The trade-off is that the decision usually can't be undone once any cooling-off period ends. A joint annuity keeps paying your husband, wife or partner after you die.
Last updated
Is annuity income taxed?
Yes. Annuity payments are taxed as income, like a salary, at your normal rates once your £12,570 Personal Allowance is used. You can usually take up to 25% of the pension pot tax-free before you buy, up to the £268,275 lump sum allowance across all your pensions, and use the rest to buy the annuity.
What happens to an annuity when you die?
A single-life annuity stops when you die, unless you added a guarantee period or value protection when you bought it. A joint-life annuity carries on paying your husband, wife or partner, often at a lower rate that you choose at the start. These choices are made at purchase and usually can't be changed later.
Annuity or drawdown: which is better?
Neither suits everyone. An annuity gives a fixed income you can't outlive, while drawdown keeps the money invested and flexible but can run out. Many people use both, buying an annuity to cover essential bills and drawing the rest as needed. Because an annuity usually can't be undone, it is worth taking regulated advice first.
| Earliest age to take a personal or workplace pension | 55 (57 from 6 April 2028) |
|---|---|
| Tax-free lump sum | Usually up to 25% of each pot |
| Lump sum allowance (cap on tax-free cash) | £268,275 |
| Personal Allowance | £12,570 |
Still not sure what this means for you?
Ask Helena, our AI assistant. She gives general information, not financial advice.