What is an Annuity and How Does it Work?

You will receive an income from the insurance company for the rest of your life, or longer depending on the choices you make when you buy your annuity.

When you choose to retire – anytime from age 55 - you can normally take up to 25% of your total pension pot as a tax-free lump sum immediately. The remainder can then be used to buy an annuity which will pay you a taxable income for the rest of your life.

You don’t need to buy an annuity; there are a number of alternatives for accessing your pension pot. But many people may still think that an annuity remains the best option for them.
If you do choose to buy an annuity you only have one shot - as you are buying a retirement income for the rest of your life, this decision cannot be reversed.
How much income you receive will depend on the annuity rate the provider is offering at that time.
You don’t need to buy an annuity from the same company you saved with; in fact the Financial Conduct Authority found that 80% of those who don’t switch could have had a better deal if they had got their annuity from a different provider.
Not everyone gets the same deal when it comes to buying an annuity; you need to shop around to see what each provider is offering you. This could increase your income by up to 27%^{^}.
Annuity rates fluctuate so you might want to delay buying an annuity if you think that rates may rise.
Enhanced annuity rates are more generous as the insurance company isn't expecting you to live as long which means they will not have to make the payments for as long. Find out if you qualify by talking to a specialist today.

^{_^Based on Key's average customer 2017 - Male, Married, aged 66, history of heart attack, diabetes, high blood pressure and a smoker, fund value £51,754. It depends on your individual circumstances if you are able to achieve these increases above.}

What is an annuity?

Annuities at a glance

How much income could you get with an annuity?