Annuity Definition


Annuity Definition and How they Work

An annuity can be defined as:

  • A fixed sum of money paid to someone each year, typically for the rest of their life
  • A form of insurance or investment entitling the investor to a series of annual sums

Most annuities are typically purchased from pension funds when people use the capital which they have accrued over their working lives and buy a guaranteed income stream for the rest of their lives. In return for the guaranteed income with a conventional annuity you give up all rights to the capital so in the event of your death there is no return of capital to your estate. There are some exceptions to this - lifetime annuities provide  unless An annuity provides assurance that you will receive an income for the remainder of your life, even if the total amount of annuity you receive exceeds the amount of money you have saved towards your pension.

Insurance companies provide annuity plan quotes based on your personal circumstances, such as age, health and sex.

There are several types of annuity plans, which have been designed to suit a range of circumstances:

  • Compulsory purchase annuities
  • Impaired/enhanced life annuities
  • Investment-linked annuities
  • With-profits annuities
  • Unit-linked annuities
  • Purchased life annuities

If you are unsure of which annuity plan to choose, it is advisable to speak to a professional finance advisor about which annuity plan applies to your personal circumstances. See the service below.

Annuity Quote Services
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YesComparison of leading UK annuity providers. Enhanced annuities available if you have a medical condition. Enhanced rates available for smokers.Up to 40% more incomeGet Quotes >


 Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.