Retirement guide
What is an annuity?
An annuity converts some or all of a defined contribution pension into guaranteed taxable income. Depending on the type chosen, that income can last for the rest of your life or for an agreed fixed period.
The basics
How does an annuity work?
You use some or all of a defined contribution pension pot to buy an annuity from an insurance company or pension provider. In return, the provider pays the income promised under the annuity contract.
Lifetime annuity
Provides guaranteed income for the rest of your life.
Fixed-term annuity
Provides guaranteed income for an agreed period and can sometimes include a maturity amount at the end of the term.
Annuity income is generally taxable and is counted when calculating your Income Tax liability.
Your income
What determines how much an annuity pays?
The income available depends on factors including how much pension money is used, your age, health, where you live, market conditions and the features selected.
Choosing additional guarantees or an income that increases over time will normally reduce the amount of income available at the outset.
A quote available today is not necessarily the rate that will be available later, and different providers can offer different levels of income.
Choices at outset
Not all annuities provide the same benefits.
Level income
Starts higher than a comparable increasing annuity but normally stays at the same cash amount, so inflation can reduce its purchasing power.
Increasing income
Can rise by a fixed percentage or in line with an inflation measure, depending on the contract.
Joint-life
Can continue an agreed proportion of income to a spouse, partner or dependant after your death.
Guarantee period
Can continue payments for a minimum period even if you die during that period.
Value protection
Can provide a payment to beneficiaries if you die before receiving a specified value from the annuity.
Payment frequency
Income can commonly be structured monthly, quarterly, half-yearly or annually depending on the provider.
Enhanced annuities
Health and lifestyle can affect the income offered.
MoneyHelper confirms that some medical conditions and lifestyle factors can result in a higher annuity income because the provider takes them into account when estimating life expectancy.
This can include certain health conditions, smoking and other relevant medical or lifestyle information. It is therefore important to disclose accurate information when obtaining quotes.
Check the pension first
Your existing pension might already contain a guaranteed annuity rate.
Some older pension contracts contain guaranteed annuity rates set when the policy was established. These can sometimes provide more guaranteed income than current market rates, although conditions may apply.
A guaranteed annuity rate or other valuable feature can be lost on transfer. Ask the existing provider to confirm all guarantees and the conditions for using them.
Before committing
An annuity purchase deserves careful comparison.
MoneyHelper advises comparing providers rather than simply accepting the annuity offered by an existing pension company. Your health and the exact features requested can materially affect quotes.
How much security do you need?
Consider which essential expenditure would benefit from guaranteed income.
Do you need flexibility?
Money committed to a lifetime annuity is normally no longer available as a flexible pension pot.
Who else needs protection?
Consider whether income should continue to a spouse, partner or dependant.
How important is inflation protection?
A level income may buy less over a long retirement.
It can be possible to use part of a pension for guaranteed income while leaving other pension money invested or using another retirement-income option.
Personal retirement advice
Considering guaranteed retirement income?
A retirement plan can compare the role of annuity income, drawdown and other assets against your spending needs, tax position and preference for certainty or flexibility.
Book a conversationThis guide is for general information only and is not personal financial or tax advice. Annuity rates and pension and tax rules can change. Once an annuity is purchased and any cancellation period has ended, it is typically not possible to change your mind. Content checked against current MoneyHelper guidance on 15 September 2026.