A conventional annuity or ‘standard annuity’ is currently the most common annuity purchased by people retiring in the UK today.
These annuities allow you to plan your finances without fear that your income will change in the future, by providing an income that is guaranteed for life.
In return for the money you saved into your pension pot during your working life, the company providing the annuity takes on the future risk of providing you with a guaranteed income for life.
Here are some aspects of conventional - or standard - annuities that you might like to weigh up.
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Disadvantages |
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You know what income you will be receiving for the rest of your life
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Once you have secured your conventional annuity you cannot change it – even if your personal circumstances change or inflation - the cost of living - rises steeply |
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You can usually take up to 25% of your pension pot as tax free cash (now known as the Pension Commencement Lump Sum) before you purchase the annuity
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If you die relatively soon after taking out the annuity the money used to fund its purchase cannot be returned – even if you have only received a fraction back from the annuity provider as income payments.
You can choose to protect against this happening but it will mean having a smaller income from the outset
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You can include an option to increase the income you receive from a conventional annuity to ensure you protect against inflation, but this will usually mean a lower initial income
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If you haven't considered applying for an enhanced annuity, you might be losing out on income. (Read more about enhanced annuities here) |
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You have the security of knowing that you will never spend all your pension savings and you will always have an income
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You can include various options to provide for others such as your spouse or dependants but this can also mean a lower initial income
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We would aways ask you to discuss your situation with a financial adviser.
If you don't have an adviser you could use Unbiased.co.uk to help you find one.
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