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Benefits payable on retirement

Purchasing an annuity

The term “annuity” means a series of pension payments, normally monthly, until a particular event occurs. Annuities are normally purchased by payment of a single premium to a life assurance company. You should think about taking advice when considering your retirement options, especially where you are buying an annuity.

If you are a member of a defined benefit scheme, you may never have to make a decision about buying an annuity as the trustees will pay your pension directly or buy an annuity on your behalf.

But for other pension arrangements, the purchase of an annuity may be one of the most important financial transactions in your life - certainly it is one with very long term consequences. It is therefore important to understand how annuities work and the various options that may be available to you.

Many pension arrangements, particularly those that invest in insurance contracts, allow an "open market option". This means that you may have a choice of going to any life assurance company operating in the market, regardless of where the pension fund itself was invested. This is important as some providers of annuities are more expensive than others from time to time.