A guide to pensions and annuities


It is easy to think that you can just put money into a pension and then withdraw it all when you retire but it isn't as simple as that. There are various things you need to do to get your money and convert it into an income as well as budgeting enough to provide a decent income when you retire.


There are various different types of pensions available including personal pensions, workplace pensions and State Pensions. The State Pension is split into two categories of basic and additional and your personal circumstances will determine which one you're entitled to. As long as you have enough qualifying years from your National Insurance contributions, you will be entitled to a basic State Pension on some level. The additional State Pension comes into play if you're employed, caring for someone or looking after a child.

Personal pensions are available from building societies, banks and life insurance companies. They take your savings and invest them on your behalf. You can get tax relief on your savings up to the annual allowance by saving money into these personal pensions. A stakeholder pension is a different type of personal pension and has to meet specific government guidelines including having restrictions on annual management charges, as well as offering flexibility to switch to a different pension provider without having a penalty charge.

Workplace pensions are arranged through your employer. They enrol eligible employees into the pension and you will have it ready for your retirement. You can opt out of it but your employer and the government contribute to the overall pot so many employees choose to stick with it. The pension that you eventually have largely depends on the type of employment you are in. It may be the case that you have put money into a pension over the years and are looking at the options of how to access your money upon retirement. This is where you will want to consider an annuity.


An annuity gives you a way of converting your pension into a regular income that will see you through for the rest of your life. There are a number of different types of annuities and you can choose one that best fits your needs. It may be the case that you want a joint life annuity that sees some or all of your income paid to your partner after you die. Alternatively, you can get investment annuities that see your money still being invested, giving you the potential for a higher income.

You need to have a defined contribution workplace pension or a personal pension to get an annuity. If you have a pension that pays you an income directly, you won't need an annuity. When you go to purchase one, you will be given a rate as a percentage that allows you to then work out how much income you'll get each year. As an example, if you have £100,000 in your pot and you are offered a rate of nine per cent, your annual income will be £9,000 per year.

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