Buyers' Guide - Annuities

Unless you retire with a final salary pension, you normally have to convert your pension fund into an income for the rest of your life. For the majority of people the most practical option is an annuity. So what should you look for? Let Moneywise help with our Buyer's Guide.

You don't have to buy an annuity with your pension but it's the only product that guarantees to pay you an income for the rest of your life. So unless you have substantial investments, an annuity usually makes sense.

The bigger your pension the more money you'll get, but other factors like your age, your health and sometimes your postcode are also important. Unlike insurance where the young and healthy get better rates, the opposite applies here - the lower your life expectancy the better the rate you'll get.

You can buy an annuity from your pension company but  once you've bought it you can't change your mind, so it pays to shop around for the highest income you can find.

If you have health problems, such as heart disease or diabetes, or you smoke, its especially important to shop around as you could get an even bigger payout.

There are lots of types of annuity so it's important to think about what you want from your retirement income as well. A level annuity pays a flat rate from outset but one that's index-linked will increase by inflation. If you're married you may be better off buying a joint life annuity, so your spouse still receives an income if you die first.

Payments normally stop when you die,  but you can get round this by buying a guaranteed annuity that promises to pay out for a set number of years to the beneficiaries of your choice.

Finally if you're in any doubt, speak to an IFA on specialist annuity service.

It's too big a decision to make without all the facts.