What is an Annuity?

A financial product designed to provide income in exchange for a capital sum, like a pension fund. They have been around for centuries in different forms and today still provide the backbone of retirement solutions in the UK.

There are a number of different types available and this section focuses on Conventional Annuities for pension funds. Please refer The Alternatives to Conventional Annuities to complete the picture.

What is a Conventional Annuity?

Conventional annuities provide a guaranteed income for life. The income is neither subject to investment risk nor mortality risk. This means that it doesn’t matter what happens to stock markets, house prices or any other investments, and, the income will continue to be paid out, even if you smash the longevity record!!

Once bought, these annuities pay a set level of income or income linked to a prescribed rate or index throughout life.

This security of income suits most people in retirement, and of maturing individual pension funds in the UK, conventional annuities are by far the most popular option - around 90% of people buy them.  (Source: ABI – 2007)

This security and the fixed nature of conventional annuities are provided at the expense of flexibility. Once bought, they cannot be changed, transferred or cashed-in. So, it makes sense to take time considering your situation and choosing your options carefully. Your Annuity Bureau Consultant can help you, and you can also ‘model’ different options, and obtain instant live annuity quotes on our online annuity supermarket. The information that follows is also aimed at helping you.