Pensions and Retirement guides

How to buy an annuity – A guide

2 April 2024

7 minutes

This content was reviewed and approved by Marc Perry.

Annuities can offer a guaranteed income in retirement, helping you to live the retired life you want.

An annuity provides you some stability during your golden years, ensuring you have a regular income to look forward to. Buying an annuity isn’t as simple as ordering a new pair of shoes, but it could be an investment worth having.

Although you can’t sell your annuity or ask for the money back before the annuity expires, it could be a very important purchase for your retirement, and one that requires a fair bit of investigation and planning.

Before you start your purchase, it’s best to speak to a retirement advice specialist first. They can help you to understand what the best options are for you based on your plans and hopes for retirement.

How to buy an annuity

So, you’re set on buying an annuity, but what are the steps you need to take before you can start benefiting from an annuity?

1. Check your pension pot and savings

Before you speak to a retirement or pensions adviser, it’s important to know what you have available in your pension pot. If you are having problems tracking your previous workplace pensions down, the government's Pensions Tracing Service should be able to help. There are also services provided by third parties, and some financial advisers may also offer a pension tracing service.

Once you’ve collated all your pensions and know their value, you should consider any other savings you may have, whether that’s long-term investment savings or short-term ones. While some may choose to have their savings for easy access, others may want to use them to provide additional value to their annuity.

It’s best to start finding your pensions before you plan to retire. Careful financial planning can help you make the most out of your retirement without any undue stress.

2. Speak to a retirement or pensions adviser

While retirement or pensions advice isn’t for everyone, it can help you to understand what options are available for you and assist you in creating a plan for retirement so you get the most from your pension savings. If you were buying a new house, you’d probably speak to a mortgage broker or financial adviser first, and an annuity is no different.

You may not realise the options available to you – for instance, there may be a more suitable retirement solution for your circumstances than an annuity, such as a pension drawdown or a fixed term annuity. To get an idea of what your income could look like from either a drawdown or fixed term annuity, try our pension drawdown calculator or fixed term annuity calculator.

Financial and retirement advice is regulated by the Financial Conduct Authority (FCA), and every adviser has to abide by a strict set of rules. Essentially, whichever financial adviser you speak to will provide advice that works for you, not the company they represent. With LV=’s retirement advice service, we usually only charge our fees if you decide to follow through on our recommendations. If you choose not to work with us for retirement advice, we strongly suggest that you check the FCA’s Financial Services Register. This register will show you what firms and people have authority to do what they say the can.

3. Get quotes on a range of annuities

Whether you choose to buy an annuity through a retirement specialist, or on your own, it’s important to shop around the market. Annuity rates vary depending on a wide variety of factors, including your health, interest rates, gilt yields and much more, so looking at what providers have is incredibly important.

It’s worth investing the time to seek guidance or invest in financial advice, to help with this step. Financial advisers or retirement specialists will have access to annuity providers that a customer cannot access directly so they can view the entire market in just a few clicks, making it much simpler for you to get quotes and the highest retirement income.

Remember that annuity rates can change with interest rates, so the quotes you received might have an expiry date – it’s worth keeping that in mind as you look around.

4. Choose your annuity

Once you’ve chosen the annuity most suitable for you, you can speak to your financial adviser or retirement specialist - if you’ve decided to go down this route - and your annuity provider about the next steps. They will each have their own processes on how they start your annuity up. Remember to keep copies of any contractual agreements, as well as important contact information and any accompanying documents.

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What happens after you buy an annuity and complete the transfer process?

Congratulations! You’ve set yourself up for retirement. After you’ve purchased your annuity, the main steps you need to do as are follows:

Confirm the amount you are transferring to your annuity provider. You might get 25% of your pension pot as a tax-free lump sum, and the rest is taxed as income, as is the annuity payments themselves.
Tell your annuity provider what day of the month you would like to get your annuity payment. Most people choose a date near the end of the month to cover outgoing bills for the following month. This varies by provider, as some may pay out on specific dates.
Begin the transfer process of the money to your annuity provider. If you’re using a retirement specialist or financial adviser, they can normally do this process for you. Bear in mind, the transfer process can take up to a month in most cases, so don’t expect to buy an annuity on one day and see the money 24 hours later.

When can I buy an annuity?

You can normally buy an annuity from the age of 55. But, don’t leave arranging your pension income to the last minute. Annual forecasts from your pension provider should give you an idea of how much you have in pension savings, and they may send you an annuity quote sometime before you plan to retire.

When should you buy an annuity?

There’s no ‘right’ time to buy an annuity. It should be based on your financial circumstances, as well as your retirement plans. You may want to take your annuity out at 55, or you may want to wait until you’re older. It’s really up to you.

Our advisers are here to help

If you’re thinking about purchasing an annuity but aren’t sure on the process, our retirement advice service could be perfect for you. We’re FCA-regulated, impartial and have access to a wide variety of annuity products, not just those from the Liverpool Victoria group. You’ll get the best advice for you.

It’s as simple as that. Why not get in touch today?

Start your conversation by giving us a little more information about your pension and retirement plans by calling on 0800 032 9301 or you can request a call back at a time that suits you.