What is an Annuity?

An annuity is a special investment, sold by insurance companies. It is a way of converting a lump sum, usually the Pension Fund* you have built up during your working years, into an income during your retirement.

*See also using your open market option

If you have one of the following contracts, you will need to purchase an annuity.

• A Personal Pension.
• A Stakeholder Pension.
• A Group Personal Pension Plan, arranged through your employer.
• A Retirement Annuity Contract (similar to a Personal Pension, but sold before 1988, when Personal Pensions first became available)
• An Additional Voluntary Contribution (AVC) Scheme, that builds up your own investment fund.
• A Free Standing Additional Voluntary  Contribution (FSAVC) Scheme.

You may also need an annuity if you are contributing to

• A Defined Contribution or Money Purchase Employers Pension Scheme
• A Section 32 Policy – If you have used this to transfer out of your employers pension scheme.

Why Do I Need An Annuity?

`By Law, with some exceptions, eventually you must buy an annuity with your pension fund’   (FSA Guide to Annuities 2004)

An annuity is a special type of investment because, apart from a temporary annuity, it will pay you an income for the rest of your life. Unlike other investments, it cannot be used up, however long you live, neither can it be stopped or sold.

There are various types of annuities, for a fuller description of the types available please click here.