What is an annuity?

When you want to turn your pension pot into a regular pension income you have to buy an annuity.

This is a pension you buy from an insurance company. You hand over your pension fund to them and in return they pay you a regular pension until you die (and - if you have the right kind of annuity - your surviving dependants too).

Annuities can vary a great deal between companies. Not only can they work in different ways, they can also vary in how much pension they provide for the same pension pot.

Many pensions – and all stakeholders and group personal pensions - have always allowed you to shop around for the annuity which best suits and provides the best value for you. This is known as the Open Market Option.

But in the past some have tied you to an annuity provided by the supplier of your pension. This is no longer allowed, but you should never accept an annuity from your pension provider without considering other options.

You are strongly advised to take specialist advice from an independent financial adviser who specialises in the annuity market.