The other day, I had a lovely meeting with a client—we’ll call her Margaret (not her real name, of course, but she definitely had real questions). She came in to chat about annuities, having heard whispers from friends about how “wonderful” they are. Naturally, curiosity (and perhaps a little pension-pot anxiety) brought her to my office.
Now, Margaret has a flexible pension pot from a money purchase scheme. She’s enjoyed the freedom it offers, but with retirement in full swing and income needs changing, the idea of a guaranteed monthly payment caught her attention. And rightly so—annuities can sound quite appealing.
But here's the thing: annuities are not a one-size-fits-all solution. So we sat down, had a cuppa, and talked it through.
So, what exactly is an annuity?
An annuity is essentially a contract. You hand over some (or all) of your pension pot to an insurer, and in return, they give you a guaranteed income—usually for life. There are also fixed-term annuities designed to bridge income gaps (for instance, between retirement and state pension age), but most people opt for the lifetime version.
In other words: If you’re the kind of person who likes your income like your tea—reliable and regular—then an annuity could be worth exploring.
Are annuities for everyone?
Not necessarily. We discussed a few key points Margaret hadn’t considered:
Now, Margaret has a flexible pension pot from a money purchase scheme. She’s enjoyed the freedom it offers, but with retirement in full swing and income needs changing, the idea of a guaranteed monthly payment caught her attention. And rightly so—annuities can sound quite appealing.
But here's the thing: annuities are not a one-size-fits-all solution. So we sat down, had a cuppa, and talked it through.
So, what exactly is an annuity?
An annuity is essentially a contract. You hand over some (or all) of your pension pot to an insurer, and in return, they give you a guaranteed income—usually for life. There are also fixed-term annuities designed to bridge income gaps (for instance, between retirement and state pension age), but most people opt for the lifetime version.
In other words: If you’re the kind of person who likes your income like your tea—reliable and regular—then an annuity could be worth exploring.
Are annuities for everyone?
Not necessarily. We discussed a few key points Margaret hadn’t considered:
- Attitude to risk: If the thought of stock market ups and downs makes your blood pressure spike, an annuity might be the right thing for you.
- Capacity for loss: If you rely on your pension income to meet essential needs, the security of an annuity can be reassuring.
- Health & longevity: Ironically, the longer you live, the better annuities pay off. And if you’re in poor health? You might qualify for what's known as an enhanced annuity, which gives you a higher income.
So far, so good. But then came Margaret’s big question.
“I just want to make sure my children can benefit from my pension if I don’t live much longer.”
And there it was—the major sticking point.
Once you buy an annuity, that money is essentially locked in. If you pass away, the income stops, and your pension pot doesn’t get passed on (unless you’ve built in spousal benefits, which reduces your regular payments).
So, for someone who values flexibility, legacy planning, or wants to keep options open, an annuity might feel a bit…well, restrictive.
The Bottom Line?
Buying an annuity is a serious decision—like getting a financial tattoo. It’s permanent, and you want to be absolutely sure it suits you before you commit.
It’s not about whether annuities are good or bad. It’s about whether they’re right for you.
If you're thinking about how to secure your income in retirement, and whether annuities play a part in that, your best move is to speak with a qualified financial adviser (like yours truly). We’ll look at your goals, your lifestyle, and the people you love—and help you create a retirement strategy that makes sense for all of it.
After all, your money should work just as hard in retirement as you did to earn it.
Important Information:
Annuities are not suitable for everyone. The level of income you receive will depend on the amount used to purchase the annuity, prevailing interest rates, your age, health, and selected options such as inflation protection or spousal benefits. Once an annuity is purchased, it cannot usually be changed or cancelled.
Please note:
The value of your pension pot used to purchase an annuity is converted into a guaranteed income, and you will no longer have access to that capital. In most cases, annuities do not provide a lump sum death benefit and may not allow you to leave funds to your beneficiaries. You should always seek personalised advice from a qualified financial adviser before making any decisions regarding annuities or pension income options. Past performance is not a reliable indicator of future performance. Tax treatment depends on individual circumstances and may be subject to change. Haverfords is authorised and regulated by the Financial Conduct Authority. FCA Number: 989644.
“I just want to make sure my children can benefit from my pension if I don’t live much longer.”
And there it was—the major sticking point.
Once you buy an annuity, that money is essentially locked in. If you pass away, the income stops, and your pension pot doesn’t get passed on (unless you’ve built in spousal benefits, which reduces your regular payments).
So, for someone who values flexibility, legacy planning, or wants to keep options open, an annuity might feel a bit…well, restrictive.
The Bottom Line?
Buying an annuity is a serious decision—like getting a financial tattoo. It’s permanent, and you want to be absolutely sure it suits you before you commit.
It’s not about whether annuities are good or bad. It’s about whether they’re right for you.
If you're thinking about how to secure your income in retirement, and whether annuities play a part in that, your best move is to speak with a qualified financial adviser (like yours truly). We’ll look at your goals, your lifestyle, and the people you love—and help you create a retirement strategy that makes sense for all of it.
After all, your money should work just as hard in retirement as you did to earn it.
Important Information:
Annuities are not suitable for everyone. The level of income you receive will depend on the amount used to purchase the annuity, prevailing interest rates, your age, health, and selected options such as inflation protection or spousal benefits. Once an annuity is purchased, it cannot usually be changed or cancelled.
Please note:
The value of your pension pot used to purchase an annuity is converted into a guaranteed income, and you will no longer have access to that capital. In most cases, annuities do not provide a lump sum death benefit and may not allow you to leave funds to your beneficiaries. You should always seek personalised advice from a qualified financial adviser before making any decisions regarding annuities or pension income options. Past performance is not a reliable indicator of future performance. Tax treatment depends on individual circumstances and may be subject to change. Haverfords is authorised and regulated by the Financial Conduct Authority. FCA Number: 989644.
Kat – IFA/Director
