Key facts

An annuity (or secured income) is the technical term for what most people think of as their ‘pension’, in other words the regular amounts of money paid to you in your retirement.

Traditionally you buy an annuity using the money you’ve saved up in your pension plan while you were working, after you’ve taken any tax-free cash you’re entitled to. You pay an insurance company, like AEGON, a lump sum in exchange for a regular income for life.

Planning for your future

• An annuity pays you a regular set level of income (conventional annuities only) for the rest of your life, not a set number of years.
• There’s no investment risk on conventional annuities. But there’s no potential for investment growth.
• It can provide an income for members of your family too, if you die before them. However, if the annuity is set up on your life only, it will stop on your death.
• It can protect your income against the effects of inflation.
• Usually the earliest you can buy an annuity is age 55.
• Following recent legislative changes, there’s now no set age when you have to have bought an annuity with your pension fund by. So you decide if and when you want to buy one.
• Value protection can protect some of your original investment if you die.

You can’t change an annuity once it’s set up and you can’t get your money back at a later date, unless you’ve chosen value protection.

The regular income is reliant on the ability of the issuing insurance company - in this case Scottish Equitable plc - to pay it. If, for example, that company no longer existed, then your regular income may be affected.

Types of annuity

You can set up an annuity on a single life or a joint life basis:

• Single life annuity - we pay an income to you as long as you live.
• Joint life annuity - we pay you an income as long as you live and, after that, an income to a member of your family. You can also add in options to protect your income against the effects of inflation.

The type of annuity you can buy depends on the money you use to buy it:

• You buy pension annuities with money from a pension fund.
• You buy purchased life annuities with non-pension money, for example using the proceeds from an ISA.

Annuity choice

When you come to retire, you don’t have to take your annuity with the same company that provided your pension plan. You can buy an annuity from another company if you prefer - this is known as the open market option. So you can buy your annuity from us even if your pension plan is with another company, or buy your annuity with another company if your pension is currently with us.

And it’s worth shopping around for the right deal, as annuity rates can vary.

Income you can rely on

According to the Office for National Statistics (ONS), the average 65-year-old man will live another 17 years* and the average 65-year-old woman another 20*. And, of course, some people will live longer than that – you could be retired almost as long as you were at work. So it’s important to make sure you won’t run out of money in retirement.

If you live long enough, you could actually receive more in income than you had originally paid in. In effect, you’re paying for the insurance company to take on the risk of you living longer than the average person.

*Office for National Statistics: Life expectancy at birth, UK, from period life tables, 1980-82 to 2007-9. 

Interested in an annuity?

Find out what to do next if you want to apply for an annuity.

How to apply

Plan today, enjoy tomorrow

Do you know how much you’ll need to live on when you retire? Our online tools can help you add up your current and future costs.