Annuities are most suited to those who have retired. Annuities are not usually recommended for those who are still in full-time employment or likely to go back to full-time employment.

There are two types of annuity:

Compulsory purchase

These are bought with money from a pension fund. Part of the pension fund is paid out as tax-free cash, but the remainder MUST be used to purchase an annuity.

Purchased life

Purchased life annuities can be bought using your own money. Part of the income you receive will be tax-free.

You are free to purchase your annuity from any provider – you do not have to buy it from the company you built up your pension fund with. There is a lot of choice regarding the type of annuity you can buy and the additional protection you can take out. Possible variations include single or joint life, level or escalating, guaranteed or not and enhanced or impaired life. It is therefore important that you understand all the choices available – it might be worth consulting an Independent Financial Adviser to explore your options.

If you are considering purchasing an annuity, it is worth shopping around to find the most suitable annuity for your individual circumstances. The finance sections of the national newspapers often list the best deals for different types of customers. The FSA also provide comparative tables which may help you to find the best product for you. Visit

Further information: 

The Annuity Bureau: 

The Association of British Insurers:

The FSA produce a helpful fact sheet which can be downloaded from:

You can obtain a paper copy by telephoning The Financial Services Authority (FSA) on 0845 606 1234 and asking for a copy of their 'Guide to Annuities and Income Withdrawal'.