Should I buy an annuity with my pension?

A pension annuity is a financial product you can buy with your retirement savings to turn them into a guaranteed income stream for life.

Although there are other ways you can access your pension pot, an annuity offers the security of knowing exactly how much money you’ll get each month, regardless of how long you live.

So how does it work?

When you retire, you’ll typically have a pot of money stored in a pension plan. You can use some or all of this money to buy a pension annuity.

The annuity provider will then use your pension savings to calculate a guaranteed income payment that you’ll receive for the rest of your life. This gives you peace of mind in retirement and the certainty of knowing you’ll have a steady stream of income.

Think of a pension annuity as a swap.

You hand over some or all of your pension savings to an insurance company, and in return, they guarantee you a regular income payment for life.

You can then budget effectively and plan for the future with confidence.

It’s like having your own personal pension plan, but without the responsibility of managing investments.

There are various annuity options available, with some offering a fixed income amount throughout your retirement, and others that tie the income to investment performance.

Annuities can also provide a degree of protection against inflation.

Some will offer inflation-linked increases, which means you can be sure that your income will keep pace with rising living costs, and that you can maintain your purchasing power in later life.

In addition, certain annuities can provide a payout to your loved ones if you pass away before a set period, which means they get some financial security during a very difficult time.

But while annuities can be an extremely attractive option, it’s worth remembering they’re not a one-size-fits-all solution, so you should think about all the possible implications.

For instance, accessing the principal amount can be difficult or come with penalties. Furthermore, annuities typically offer lower returns compared to some investment options, so if you have a high-risk tolerance, it might be worth looking at alternatives.

The best step to take before rushing in head first is to research the market.

Get quotes from different annuity providers to compare rates and features, and don’t feel you have to accept the first offer that comes your way.

You should also consider seeking advice from an independent financial adviser on planning for your retirement.

They’ll point you towards all the different options that are open to you, including annuities, and advise you on how to maximise your income in later life.

You’ll then be in a strong position to make an informed decision and set yourself up for a happy, fulfilling and secure retirement.

Get in touch with us today and we’ll be happy to speak with you.

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit

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