Guide
What to do before buying an annuity
Updated
Annuity outcomes vary far more by process than by provider, and the process costs nothing. These four steps, in this order, are what separates a good purchase from an ordinary one.
Use the free guidance first
Government-backed guidance on retirement income is available before you commit, and gov.uk sets out how to get financial advice as well. Using it is free and it happens before any product decision.
It is worth doing even if you are confident, because the questions it raises about other income, tax and dependants are the ones that determine whether an annuity is the right shape at all.
Answer the health questions properly
Enhanced annuities exist and providers cannot offer one for something they were never told. Complete the medical and lifestyle questionnaire fully, including things that feel minor.
This is the step most often skipped and the one with the largest effect on income for the people it applies to.
Exercise the open market option
Your existing pension provider is under no obligation to give you the best available annuity. Get quotes elsewhere, and compare like with like: the same options, the same guarantee period, the same escalation.
Comparing a level single life quote against a joint life escalating one is the most common false comparison in this market, and it makes the worse product look better.
Understand the tax before you draw
Pension income above your Personal Allowance is subject to Income Tax, and gov.uk warns that taking a large amount from a private pension can mean paying at a higher rate. Income Tax also applies to any part of a lump sum above your lump sum allowance or your lump sum and death benefit allowance.
The amounts of those allowances and how they apply to you are matters for gov.uk and for your adviser rather than for this page. What matters here is that the tax position is part of the decision rather than an afterthought.