What are annuities?

A lifetime annuity is a type of insurance contract that you can use to guarantee that you will receive an income from the annuity provider until the day you die.

You use your SIPP fund - in whole or in part - to buy a contract with an insurance company and the insurer will pay you an income for the rest of your life. You choose whether the level of payment will stay the same, rise with inflation, or drop at a later point in time, when you choose the contract. You can also have an annuity that will pay your spouse an income after you die if you wish.

The amount you will receive from an annuity depends on your age, how big your pension fund is and also your state of health in some cases. Once you buy an annuity, you will no longer have any say over how your fund is invested, but you have the security of knowing your pension fund will not expire before you do.

You can use this calculator from the FCA to compare annuity rates from some of the leading providers, and if you want help deciding whether an annuity is right for you, then use this tool provided by the Pensions Advisory Service. Please visit our pensions area for more information.