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What is an annuity?
An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income that will last for the rest of your life. How much you get is determined by the rate the annuity provider offers. People who have serious health problems should be offered a higher rate than someone who’s likely to live for many years. The insurer is essentially taking a bet that it won’t end up paying out more than the total pot. Buying an annuity used to be the only option for most people with a defined contribution pension (where you save into a pension scheme over your working life to build up a pot). The pension freedoms opened up more choices, but opting for an annuity will still be right for some people.
