What Is An Annuity?

When you retire you have the option to buy an annuity from an insurance provider.  You can usually take up to 25% of the amount as tax-free cash from your pension.  You can then use the remaining amount to buy the annuity and the income you receive is taxed as normal income.  How much retirement income you will get from an annuity will depend on a number of factors such as how healthy you are, how big your pension pot is and what the annuity rates are at the time you buy. There are generally two types of annuity, a lifetime annuity and a fixed-term annuity.