Conventional Annuity

A conventional annuity is the simplest and most common way of turning your pension fund into a regular payment for the rest of your life.

By handing your pension fund to an insurance company, they will make a payment to you each month for the rest of your life, which coupled with your state pension and savings can be used to live off in your retirement years.

The income you receive is based on a number of factors, including sex, age, area you live in and how large your pension fund was in the first place.

Men will receive a larger income than women, as they are not expected to live as long, and those who buy their annuity at an older age will also receive more as they are deemed to have less time to live.

Some annuity companies even look at life expectancy rates in the area you live, adjusting the amount of money they pay out based on geographical location. It’s worth shopping around if you live in either a particularly good area for life expectancy, or one where people aren’t expected to live as long, as some companies do take this into account while others do not.

Annuity providers will also ask you to fill in a questionnaire focusing your health, so smokers or someone with an existing medical condition will receive more than someone who is perfectly healthy. These are called impaired annuities, and it’s worth asking your annuity provider if you qualify (however small your health problems), as it may make a difference to the amount the annuity provider will be willing to pay you each month.

Conventional annuities are often offered by most pension providers, and many people just take on whichever one is offered to them when they reach annuity age as they don’t realise they could get a better deal by shopping around. Like car insurance, the difference in quotes is staggering – so it’s always worth looking for the best deal.

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