Compare annuities: Should I buy one?

Types of annuity

You can choose between many different types of annuity. We’ve listed them all here, with a link to the relevant product page if we offer that kind of annuity ourselves.

• Lifetime annuities regularly pay out a guaranteed sum of money for the rest of your life. And if a standard one doesn’t meet your needs, you can also get these other kinds:
  • Joint lifetime annuities regularly pay out a guaranteed sum of money for the rest of your life, then keep paying it to a loved one after you die.
  • Fixed term annuities pay out a guaranteed sum of money for a fixed period of time, stopping when that time ends. You can also choose a lump sum payment at the end of it.
  • Enhanced annuities give you a better annuity rate if you have certain health or lifestyle issues.
• Immediate needs annuities help you cover care costs by paying a guaranteed sum of money to your care provider for the rest of your life.
• Deferred annuities let you delay the start date of your regular, guaranteed sum of money by a year or more.
• Variable annuities pay out a variable amount of money for the rest of your life, with the exact amount depending on how the investments they’re based on do.
• Purchased life annuities work like other kinds of annuity, except you buy them with a lump sum payment (usually from savings) rather than money from your pension pot.

Annuity pros and cons

This table should help you get started if you’re thinking about annuity vs drawdown:

Is an annuity a good idea for you?

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.

They’re most useful for people who need the peace of mind that a guaranteed income brings. They can become more attractive as you get older, as you’ll probably be offered better rates. And if you want to look after a loved one after you’ve gone, they can be there for you.

Bear in mind also that they don’t have to be your only retirement income source. For example, they can be part of a blended retirement solution. You could spend some of your pot on a fixed term or guaranteed annuity to cover everyday bills and expenses, and hold the rest of it back ready to draw down to cover one-off or unexpected costs.

If that sounds appealing, it could be worth having a chat with our Retirement Advice service. They’ll tell you more about how it could work for you.

Of course, annuities aren’t for everyone. If you’re a younger retiree, it might be worth waiting a bit before committing to one. If you’re after flexibility, then it’ll definitely be worth looking at other kinds of retirement income product, like drawdown – once your annuity’s up and running, you can’t make any changes to it.

And as with any financial product, it’s very important to shop around for the best deal and make sure you’re fully aware of any fees or costs.

If you’re not sure if an annuity’s right for you, our Deciding How To Use Your Pension Pot tool might be a helpful starting point.

What’s drawdown?

Putting your pension pot into drawdown means you leave your money invested for you to take out (or ‘draw it down’) as and when needed. The money left invested could grow to replace some or all of the money you draw down, though its value could also drop.

Annuity v drawdown

So let’s compare a pension annuity with drawdown. What are the main differences?

Which is better – annuity or drawdown?

That depends on what’s most important to you. As a rule, people choose drawdown products for their flexibility and annuities for their predictability. And it doesn’t have to be an either/or pension drawdown vs annuity choice. More and more people are using both together.

For example, when you retire you might want to guarantee that you can always cover your bills. So you spend some of your pot on an annuity, which gives you a guaranteed income for life. Then you can invest the rest of it however you’d like.

Comparing annuity providers and rates

If you’re thinking about buying an annuity, it’s very important to shop around. That’s because different providers offer different products, benefits and rates. It’s also a good way of making sure you understand how annuities work.

As part of your comparison process, we recommend:

• Being very clear about your financial goals and needs. There’s no such thing as a perfect annuity for everyone. You can only choose the best one for you if you’ve got a clear sense of what it should achieve for you.
• Using our Annuity Calculator. It will help you understand what sort of rates you could get from us at different ages, and assuming different feature choices. It’s also worth exploring other reputable annuity calculators – just search online for them.
• Getting a quote from us. We will of course tell you about our products, but if you can get a better deal elsewhere we’ll also tell you about that. We want to make sure you find the annuity that’s right for you, whether or not it’s one of ours.
• Getting financial advice. Once you’ve bought an annuity you can’t change it. So it’s very important to make sure that you’re making the right choice for you. An adviser will help with that. And they can manage the annuity-buying process for you too.