Pension annuity

There are many types of secure income available – with lots of different features you can ‘bolt on’. These features are designed to offer extra peace of mind for you and your family after you retire. However, it's likely that any extra features you choose to add will reduce the starting level of your retirement income.

• Take care of your loved ones

You can pass on a portion of your pensions income to your spouse, civil partner or other dependant(s) should they live longer than you do.

• Keep pace with inflation

You can arrange for your pensions income to increase each year in line with inflation. This can help protect the buying power of your money as the cost of goods and services go up over time.

• Extend your income beyond death

You can add a ‘guarantee period’ which means your income payments will continue to be paid for a set period of time - even if you die before then.

• Have a lump sum paid on your death

You can arrange for a lump sum to be paid to your loved ones on your death, should you die before them.

• Get a bigger income if you’re in poor health

You may be offered a higher level of income if you have any health issues or habits which could shorten your life expectancy. This is called an 'enhanced annuity'.

• Take some tax-free cash

You can usually take up to a quarter of your pensions savings as a tax-free lump sum. You may be able to take more than this if you successfully applied to HM Revenue & Customs for a greater allowance.

If you want to take tax-free cash, this has to be taken before you buy a secure income. Tax rules depend on your individual circumstances and may change in the future.

• Decide how often you want your money

You need to think about how often you'd like your money to be paid. Many providers will allow you to choose monthly or yearly payments, with some offering quarterly payments as an option.

• You can’t change your mind

Once you’ve used your pensions savings to buy a secure income, you can't usually change your mind - even if your circumstances do. So it’s really important you get things right first time.

• Adding extra features will lower your income

If you want to add any extra features, such as making sure your loved ones will get some of your income when you die, you should expect to be paid a smaller income.

• Don’t lose out on any guarantees

If your plan has a ‘guaranteed annuity rate’ it means your provider will guarantee to pay you a minimum level of income for the rest of your life, in return for your pensions savings. This is a rare and potentially valuable feature, so it’s worth checking whether this applies to you.

• Your entitlement to state benefits could be affected

The amount of income and/or tax-free cash you take from your pensions savings could affect your entitlement to means-tested state benefits, this includes such things as housing benefits and council tax reductions.

Unless you've chosen to pass on some of your income to your loved ones or set a 'guarantee period', your pensions income payments will stop when you die.