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The open market option means you can choose the best option currently available.
Find out moreChoosing an annuity is one of the biggest decisions you’ll make with your pension savings, so it’s natural to have questions.
Understanding the different features and options will help you make a more informed choice. Below, we’ve answered some of the questions you might have about annuities.
You can typically purchase an annuity anytime from the age of 55 (rising to 57 from 2028), although there may be early retirement penalties depending on your pension provider.
You can buy an annuity with money from a defined contribution (DC) pension. These pensions build up a pot of money that can be used to provide retirement income.
Defined benefit (DB) pensions already provide a guaranteed income for life based on your salary and years of service. By converting a DB pension into an annuity, you could lose valuable benefits or guarantees. You should think very carefully and seek guidance from a financial adviser before going down this route.
No. You are normally able to buy one annuity by accumulating all, or some of, your pension funds together.
No, you don’t have to use all of a pension fund to buy an annuity. For example, some people use part of their pension savings to purchase an annuity for guaranteed income, while keeping the rest invested in their pension scheme or moved to flexi-access drawdown to take money as and when they wish.
You can buy an annuity with a small pension fund, but it will depend on the provider’s minimum limit. Different providers have different minimum limits. Please contact us if you have a small fund and we can let you know your options.
An annuity provides guaranteed income, unaffected by future changes in interest rates or investment performance. Other retirement options, like drawdown or taking lump sums, rely on the performance of your investments and how quickly you withdraw your money. This means there is a risk of running out of funds.
A Purchased Life Annuity is a type of annuity you buy with money that isn’t from a pension pot, such as savings, investments, or an inheritance. It provides you with a regular income for life or a set period. Retirement Line does not provide PLA quotes and guidance services as we specialise in annuities bought from your pension savings.
Waiting to buy an annuity will mean you miss out on guaranteed income in the meantime. Also, if annuity rates are lower in the future, your income could be less than if you were to buy an annuity today.
On the other hand, delaying the purchase of an annuity can sometimes work in your favour. For instance, you could secure a higher income if rates were to rise significantly in the meantime, or worsening health led to higher income through an enhanced annuity. Also, your overall income and tax situation might come into play.
Another factor to consider is that if you delay an annuity purchase, your pension savings will remain invested and will therefore fluctuate. This would have an effect on your future income, negatively or positively, regardless of what happens to annuity rates.
It’s important to get quotes for different scenarios and think carefully before deciding whether to delay. For example, if buying an annuity today would mean you receive £6,000 per year from it and you are considering delaying three years, make sure you understand how long it would take to make up that lost £18,000.
Yes. A drawdown pension allows you to take your tax free cash and leave the remainder of your pension fund invested until such time as you decide to draw an income or purchase an annuity. This facility is also available through a fixed term annuity without any investment risk.
No. You are likely to find the best annuity rates by exercising your 'Open Market Option' and purchasing your annuity through an alternative pension provider. Please note that this only applies to defined contribution (money purchase) pension schemes. If income derives from a defined benefits (final salary) pension scheme, this may not be an option.
The annuity your existing pension provider offers you may be less competitive than rates available on the open market. By shopping around, you may find a markedly higher income because each provider offers different annuity rates and income levels.
However, in some situations the annuity offered by your existing provider could actually be better value for you. For example, your pension scheme may include a Guaranteed Annuity Rate or other built-in benefit. That’s why it’s important to check both your provider’s offer and the wider market before making a decision.
Yes, annuity rates and product features can vary widely between providers. That’s why comparing providers is essential to getting the best outcome for your circumstances. Please see our page ‘Why shop around?’ for more information.
Some annuities are designed so that your income will increase with inflation, helping to keep pace with rising living costs. These are known as escalating or inflation-linked annuities.
However, they usually start at a lower initial income compared to level annuities, which pay a fixed amount that never changes. Choosing between the two depends on whether you prefer a higher starting income or protection against inflation over the long term.
An enhanced annuity, or impaired life annuity, pays a higher income if you have certain health conditions, lifestyle factors, or medical histories that may reduce your life expectancy. Conditions like diabetes, heart disease, high blood pressure or even a history of smoking may qualify you for an enhanced annuity.
You don’t need to be showing any obvious signs of illness to qualify for an impaired life (enhanced) annuity. For example, you may qualify due to taking long-term prescription medication, even if your condition is under control with no symptoms.
The level of enhancement depends on the severity and number of conditions you have. For example, someone with high blood pressure may qualify for an improved rate. But a person with high blood pressure, diabetes and a heart condition is likely to receive an even higher guaranteed income for life.
Any income from an annuity is treated as earned income and normal UK tax rules apply. Please note that this tax treatment depends on individual circumstances and may be subject to change in the future.
Once you’ve bought a lifetime annuity, it usually can’t be changed. The terms are fixed for life, meaning you’ll continue receiving the agreed income for as long as you live. This is why it’s so important to carefully consider the type of annuity you choose at the outset.
However, a fixed-term annuity can give you more flexibility. With this option, your income is guaranteed for a set number of years, and once it ends, you can revisit your retirement income choices. This may suit you if you’d like the opportunity to review your options again later.
Also, some fixed-term annuity products allow you to take a number of ad hoc withdrawals during the term, or terminate the plan early. Retirement Line’s Annuity Guidance Team will be happy to explain your options for fixed-term annuities - please call our team on 0800 652 1316 or request a call back.
No, in the UK you are not able to transfer or sell an annuity once it has been set up.
There are a number of annuity options available to you, when setting up your annuity. If you do not select any of these annuity options, your annuity payments will not continue in the event of your death.
Any lump sum or income received by your beneficiaries will be paid tax-free to them if you pass away before the age of 75, but treated as their taxable income if you pass away aged 75 or over.
In the Budget of 30 October 2024, the government announced that pension savings will be considered part of someone’s estate and liable to inheritance tax (IHT) from April 2027. This will be within existing IHT rules: IHT is not payable by a person’s spouse or civil partner, and is only typically payable on estates over relevant IHT thresholds.
Another aspect of inherited pensions is income tax. Currently, if you pass away before age 75 any pension funds or annuity income your beneficiaries receive is free of income tax, whereas they are liable for income tax at their marginal rate if you die after age 75. Retirement Line’s understanding is that this will remain unchanged.
There was a consultation period after the Autumn Budget, followed by a government update on its plans for IHT on pensions. Please see our September 2025 report on this update: Government publishes more details of reforms of inheritance tax on pensions. We will continue to monitor and report on this issue as further information becomes available.
Retirement Line provides information about your annuity options and annuity quotations without any obligation to use our annuity service.
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.
This depends largely on your current pension provider and how quickly they transfer your pension fund to your new annuity provider. Setting up an annuity typically takes between six to eight weeks.
Retirement Line currently operates on a non-advised basis, which means that we do not give advice, just thorough and factual information, in order for you to make your own informed annuity choice. If you would like advice, we can provide you with details of external Independent Financial Advisers and refer you to them. Just ask when you call.
With a drawdown pension (income drawdown), you invest your capital and take an income directly from the fund itself by way of 'cash withdrawals'. In the event of your death, the value of your drawdown pension fund can be paid to your nominated beneficiaries, free of tax if death before age 75, but normally subject to tax at the recipient's marginal rate if death after age 75.
Note: The Budget of 30 October 2024 included an announcement about tax on pension income. Please see details above under ‘Update – October 2024 Autumn Budget’.
Pensions legislation specifies certain occasions when a pension scheme administrator must check whether a lump sum being paid to a member exceeds that member’s available lump sum allowance (LSA) or lump sum and death benefit allowance (LSDBA).
These allowances are as follows for tax year 2025/26:
Lump sum allowance. You can usually take up to 25% of the savings in any pension as a tax-free lump sum from age 55 (age 57 from April 2028) up to a maximum of £268,275.
Lump sum and death benefit allowance. This is the maximum size of benefits you or your beneficiaries can take from all your pension schemes as a tax-free lump sum in certain circumstances, including death before age 75 and serious ill health. Currently this allowance is usually £1,073,100.
These occasions are called relevant benefit crystallisation events (RBCEs). Any lump sum that was paid before 6 April 2024 does not count as an RBCE, but they may impact your lump sum and lump sum and death benefit allowances.
If you ask our Annuity Guidance Team to help set up an annuity, they may ask whether you are over the lump sum allowance or lump sum benefit allowance. In some cases they will also ask whether any RBCEs have taken place. This is all part of fulfilling obligations in respect of your tax liability.
Please note that the protection of the FSCS will not usually apply for non-advised services. However, your new annuity provider will be covered in the event of default. Please see "How safe is my new annuity provider?"
In the unlikely event that your annuity provider was to become bankrupt, the insolvency practitioner would first try to find an alternative insurer to take on the liabilities. If however, they could not find an alternative, annuities would be covered by the Financial Services Compensation Scheme (FSCS). Annuities are classed as long-term insurance contracts and the FSCS should cover 100% of the claim with no upper limit. Please note the claim would be based on the value of the annuity, as determined by the insolvency practitioner.
If you wish to register a complaint, please contact Retirement Line Limited in writing - 52 Forder Way, Hampton, Peterborough PE7 8JB.
Please note that the protection of the Financial Ombudsman Service (FOS) will not usually apply for non-advised services.
FAQs last updated: 4th September 2025
Call for a Free Quote01733 973 038or request a call back
Retirement Line Limited is Authorised and Regulated by the Financial Conduct Authority, FCA No. 726601. Retirement Line Limited is registered in England and Wales, registration No. 6976976. Registered Office: 52 Forder Way, Hampton, Peterborough, PE7 8JB
*Retirement Line is the biggest annuity intermediary in the UK, 2018 – 2025. Latest year confirmed by 6 out of the 7 annuity providers on the whole of the open market (2024, 2025).
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