Your guide to buying an annuity

Buying an annuity is a big financial decision that you must get right.

Written by Retirement Line

Page last updated: 12th December 2024

Why you should shop around when buying a pension annuity

When you decide to buy your annuity to secure regular income from your pension savings, it’s important that you shop around. 

Accepting the first offer of an annuity from your pension scheme could end up proving costly. Instead, you may be able to enjoy more income by looking at what’s available from other providers. There may be significant differences between the annuity rates and income levels that each provider offers you.

As the UK's largest pension annuity broker*, we have helped thousands of people when buying an annuity. Our Annuity Specialists can help you compare annuity rates and quotes from the UK’s leading annuity providers to help secure the best rate. They will also explain the different annuity types, and features such as death benefits and inflation-proofing your income and the implications these may have on your annuity income.

Then we make things simple by guiding you through the application and buying process. We even liaise with your pension scheme and chosen annuity provider on your behalf until your annuity is set up. 

This guide to buying an annuity will tell you more, and you can also call our team of Annuity Specialists today on 0800 652 1316 or request a call back. They’ll talk you through your options and help you choose the best annuity for your needs. You can also use our free annuity calculator to see how much income you could secure with an annuity.

Click here for your free, no-obligation annuity quote

On this page:

• ✔️ What is an annuity?
• ✔️ Can I do anything before buying an annuity to maximise my income?
• ✔️ What happens as I approach eligibility to buy an annuity?
• ✔️ Who do I buy an annuity from?
• ✔️ Three simple steps to buying a pension annuity
• ✔️ Are there fees involved in buying an annuity?
• ✔️ Why buy your annuity through Retirement Line?

What is an annuity?

Buying a pension annuity is an option if you have money saved in a ‘defined contribution’  personal pension or company pension scheme. An annuity turns your savings into regular income for life with a lifetime annuity, or for a set term with a fixed term annuity. 

You can normally buy an annuity at any time after age 55 (rising to 57 from April 2028), although you may wish to wait longer.

Once your annuity is in place, the income it pays you won’t be affected by interest rate changes or ups-and-downs of the stock market. That means your income won’t drop if interest rates or investment performance drop, but neither will you benefit from rising interest rates or stock markets.

What happens as I approach eligibility to buy an annuity?

If you are in a type of pension scheme where you can use your savings to buy an annuity, the scheme will contact you to explain your options. 

They will typically send you what’s known as a ‘wake-up pack’. Some schemes will do this every few years until you do something with your pension pot. These packs remind you that you need to start thinking about your retirement income options. 

The wake-up pack will usually include information about buying an annuity. This may include details of a specific annuity that you could buy. 

But you don’t have to take the annuity option offered by your pension scheme. You are free to get quotes from other annuity providers, this is known as the 'Open Market Option'. Shopping around could secure you more retirement income than the annuity offered by your pension scheme. 

Before buying an annuity, you may also look at alternatives such as income drawdown. You can talk to a financial adviser about these alternatives, or call Pension Wise. This free government service helps people aged 50+ understand their retirement income options. 

Did you know? Attending a health check with your GP before buying an annuity could pay off in more ways than one. Many people in later life are living with an undiagnosed health condition such as high blood pressure, high cholesterol, or diabetes – any of which can qualify you for more income with an enhanced annuity. For example, according to the Office for National Statistics in 2023, an estimated 4.2 million adults in the UK are living with undiagnosed high blood pressure which can lead to more serious health issues if left untreated.

Who do I buy an annuity from?

It is important to know that you don’t have to buy your annuity from your existing pension provider. You can exercise your Open Market Option to shop around for better annuity rates, particularly if your health or lifestyle means that you are eligible for an enhanced annuity.

Also remember when buying an annuity, UK providers each offer their own range of plans and features. For this reason, it’s important to compare several options to find the most suitable product for your needs. 

Annuity providers are typically insurance companies, and at Retirement Line, we work closely with leading names such as Aviva, Canada Life, Legal & General and Scottish Widows. You can learn more about these providers here.

Unfortunately, many people simply sign up for the annuity offered by their pension scheme. That could end up costing you: the Financial Conduct Authority found in 2016 that ‘80% of people who purchased an annuity via their pension provider could have received a better deal from another provider’.

More recently, in September 2024 a report from retirement specialists Just Group confirmed that the gap between the best and worst annuity rates is still an issue. They say a healthy 75-year old could get up to 20% more income by shopping around, and 13% more at age 65. The gap could be even higher for people who qualify for an enhanced annuity on grounds of poor health or certain lifestyle factors.

Three simple steps to buying a pension annuity

You can start to shop around leading annuity providers with a single phone call to Retirement Line. Here’s how we make choosing and buying an annuity straightforward:

Step one: Tell us about you and your pension savings 

Your personal Annuity Specialist will check your eligibility for an annuity. They will also see if you might qualify for more income with an enhanced annuity based on your medical history or lifestyle choices.

We’ll also look at the details of your pension scheme. This is vital because you may have valuable safeguarded benefits, such as a Guaranteed Annuity Rate (GAR) or Guaranteed Minimum Pension (GMP). These might be hidden in the small print and can provide much larger payments, but only if the annuity is purchased from the original insurer. You may also be required to take advice if you wanted to transfer your fund to another provider.

Some policies can also contain penalties, which you need to be aware of before reaching a decision. Our Annuity Specialists can help you identify whether your policy contains any additional benefits or penalties.

Step two: Information and quotes

Retirement Line provides free annuity quotes, without obligation, from the UK’s leading annuity providers. We can offer our customers access to preferential terms due to the volume of annuity business we introduce. You’ll be able to compare these quotes with the annuity income your pension provider is offering you. 

We’ll also explain your options to help you decide on the type of annuity you want., in addition to the optional features you can select. These can include optional features such as:

• Level annuity. This provides a fixed income throughout your retirement. While your payments remain consistent, they won’t keep up with inflation, which could reduce your purchasing power over time.

• Increasing annuity. This offers an income that starts lower but increases annually, either at a fixed rate or in line with inflation. This helps maintain your spending power as living costs rise. Read more about inflation protection.

• Death benefits. With a joint life annuity, payments continue to someone else after you pass away. Another type of death benefit is a guarantee period: if you die before the guarantee period ends, your beneficiaries will continue to receive an income. Read more about annuity death benefits.

Step three: Apply and secure your annuity income

Once you are satisfied that you have weighed up all your annuity options and made the right choice, you can arrange your annuity. Retirement Line handles this stage for you, taking care of all the paperwork and keeping you informed every step of the way.

We’ll send you a pre-completed annuity application form to check and sign. Then we’ll liaise with your pension scheme and annuity provider until your annuity income is in place.

Are there fees involved in buying an annuity?

We provide information about annuities and provide quotes so that you can compare your options. This on what’s known as a ‘non-advised’ basis.

If we arrange an annuity for you, we will be paid a commission from the provider, which is taken into account when calculating their annuity rate. Alternatively, you can also talk to a financial adviser, but there will likely be a direct fee to pay for this.

Annuity providers also charge fees for the service they provide, but they are also typically wrapped up into the product and reflected in the annuity rates offered. Once set up, you will not be charged any monthly or annual management fees that you will need to budget for.

Why buy your annuity through Retirement Line?

At Retirement Line, we offer an impartial annuity information and quotation service. You could also benefit from preferential annuity rates we secure as the UK’s number one annuity broker* and our relationships with the UK’s leading annuity providers. 

We even have a Best Quote Guarantee where we'll send you a £250 M&S gift voucher if you receive a better annuity quotation on a like-for-like basis directly from another broker or provider¹.

For a free, no-obligation annuity quote, try our free annuity calculator. If you’d prefer to speak with an Annuity Specialist directly, you can call us on 0800 652 1316 or email us at info@retirementline.co.uk. 

Click here for your free, no-obligation annuity quote

Frequently asked questions

I’m a few years away from buying my annuity - can I do anything to maximise my income?

If you are some time away from buying a pension annuity, you can certainly take steps now to grow the size of your pension pot. This could increase the level of retirement income your annuity will generate.

For example, you may be able to put more money into your pension scheme, either from your income or from other savings/investments. As well as boosting your pension pot, this could also have tax benefits as you generally receive tax relief on your pension contributions. Please note that Retirement Line are not tax specialists and that you should check this option first with your accountant or independent financial adviser.

Do I have to buy an annuity from my current pension scheme?

No, if you decide that buying an annuity is the right choice for you then you are not required to purchase one through your existing pension provider. You have the right to shop around and choose an annuity from any provider you choose. This is known as the Open Market Option and can help you find a product that offers the best income and features for your individual needs. Comparing different providers before buying a pension annuity is crucial, as rates and options can vary significantly.

¹ Terms & conditions apply