Annuity is a financial product that turns contributions into a pension fund into regular income once a person retires. In that way it is a type of insurance product, swapping pension savings into guaranteed regular income for the rest of a person’s life.
An annuity used to be the only option for UK retirees with defined contribution pension schemes, but in 2015 then Chancellor of the Exchequer George Osborne opened up the pension market to more choices. Retirees can now choose to take lump sums, take the whole pot, or take flexible income drawdowns. Still, annuities remain a popular option because of the guarantee of stable income for life.
There are different types of annuity available, including a single-life annuity covering one person and a joint-life annuity that will go on being paid to a spouse or partner until they die. There are also annuities known as enhanced annuities and value-protected annuities. Annuity payments are liable for income tax.