Your annuity options

When you buy an annuity you can select the intervals at which you would like to receive your income. This can be monthly, quarterly, six-monthly or annually. You can also choose whether you would like to be paid at the beginning or at the end of each interval.

As a rule, the later you receive your payments, the larger your annual income will be.

Most people opt to receive their pension income monthly in arrears, as this is what they have become used to during their working lives.

Most customers choose an income that is fixed for life, meaning that they receive the same amount each year. This doesn’t provide any protection against inflation, so income relative to the cost of living may be reduced over time.

If this concerns you, you can choose to protect your income against inflation by choosing an income that will increase over time. Whilst you will receive a smaller amount to begin with, your income will increase each year. You can choose for your payments to increase by 3%, 5% or in line with inflation.

If you're married, have a partner or financial dependents you should consider what income they will have if you pass away before them. With this in mind, you can choose an annuity that continues to pay all, or a proportion of, your retirement income to a loved one for the rest of their life in the event that you die first. This is called a 'joint-life annuity'.

If you choose to provide this protection for a loved one then the amount that you receive each year will be smaller as a consequence.

Because a lifetime annuity pays you a pre-agreed sum each year for the rest of your life, the value that you ultimately get from your annuity will depend, to a large extent, on how long you live for. If you are to pass away shortly after buying your annuity, for example, you may only realise a small proportion of the value of the annuities purchase price.

If this is a concern to you, you can choose to provide protection against early death in one of two ways. Choosing either one of these options will reduce the amount of income that you will receive each year.

- Firstly, you can choose to guarantee that your income payments continue to be made for an agreed period, even if you are to die sooner. You can opt for a guarantee that lasts for a maximum of 10 years after the annuity has been purchased, with any payments after your death being made to your beneficiaries.

- As an alternative to guaranteeing your income payments, you can choose to have your pension fund refunded to your estate in the event that you pass away before you turn 75. With this option, known as 'value protection', your beneficiaries would receive the total value of your annuity price minus any payments that you had received prior to your having passed away. It is worth noting that the lump sum received by your beneficiaries would be liable to income and inheritance tax charges.