What is an annuity?

An annuity is a guaranteed income paid regularly to the policyholder for the rest of their life.

If you think a regular, guaranteed income would meet your needs throughout retirement then, an annuity could be your best option. It's worth bearing in mind, that if you choose this option, you cannot change your mind.

How does it work?

The final value of your pension fund is used to purchase a regular income for life. The amount of income you'll receive depends on a lot of different things, including:

  • the final value of your pension fund
  • the annuity provider you choose
  • your age, health and lifestyle
  • current interest rates (these influence annuity rates used to convert the fund to pension income)
  • the basis of annuity you choose. See our 'what other things do I need to think about' section below.

In the majority of cases, you won't be able to purchase an annuity directly from Zurich. To help you get the best income for your circumstances, Zurich offers an annuity bureau service, so when you contact us to buy an annuity we may offer to refer you through to their designated support team.


Good to know

You don't have to fully retire to start claiming your pension savings. In fact, more and more people are choosing to take their pension savings gradually while they scale down their work hours.

So, from the age of 55, there is an option to access your pension savings and ease into retirement gently, but don't forget you need to make sure that you have enough to last for the whole of your retirement. You can retire earlier than age 55 if you are in ill health or have a protected retirement age. This may be relevant to you if you were employed in certain (special or hazardous) occupations or were a member of an occupational pension scheme which gives you the right to take pension benefits earlier. Please refer to your policy/scheme documentation or contact us if you are unsure.

What other things do I need to think about?

Different providers offer different options and levels of income so it's really important to shop around and compare what's available before making your choice.

Take a tax-free lump sum

Aside from the income, there are a few things to consider and decisions to make. You'll also need to decide how much of your pension savings you want to take as a tax-free lump sum. You are usually able to take up to 25% of your pension savings as a tax-free lump sum.

This might work for you if you fancy rewarding yourself for all those years of work with something like a holiday or a new car, but please remember that taking some of your fund as tax-free cash will reduce your income.

Shop around

Some older policies may provide benefits based on Guaranteed Annuity Rates (GARs) which are likely to provide a higher retirement income than is available on the market from a standard annuity so make sure you check your policy documents to understand if this applies to you.

It's important to remember that annuities are not normally flexible. Once you've used your pension savings to buy an annuity, there's no going back and you cannot normally make any changes. This means it's essential to do the research and get the best possible deal to suit your circumstances.

In the majority of cases, you won't be able to purchase an annuity directly from Zurich.

Choosing the right annuity for you

You can tailor your annuity to suit your circumstances by, for example: protecting your income against inflation or providing an income for your spouse when you die. Including these features increases the cost of buying the annuity which means that you will get less regular income for your money.

If you have certain health or lifestyle conditions that could affect how long you're likely to live, you might be able to buy an enhanced or impaired life annuity. For example, smoking, regularly taking medication, being underweight or overweight, if you've worked in a hazardous occupation or if you live in an area where life expectancy is lower. These annuities may pay out a higher income.

Please note, annuity rates can go down as well as up, there is no guarantee that delaying taking an annuity will result in you receiving a higher rate than you would have received at an earlier age and you also need to consider the income you will have missed out on by not purchasing an annuity earlier.

Tax implication

The income from an annuity is taxable, so before you decide which retirement option to take, you'll need to consider your personal circumstances.

The annuity provider will be sent your tax code by HMRC and your annuity will be paid to you net of income tax - just like income is paid by an employer.

What happens to my annuity when I die?

Your annuity income will stop when you die unless there is any guarantee period outstanding or you opted for a spouses pension when you took the annuity out.

Your pension statement and illustration

Your annual pension statement contains an illustration estimating the income you can expect when you retire if you bought an annuity. Our Ready Reckoner tool can help give you an idea of how inflation can affect your retirement savings.

Zurich Pension Ready Reckoner

Made up your mind?

If you think an annuity is the right option for you, please don't hesitate to get in touch. Our team will be happy to help.

Need advice?

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