Get the right annuity
1. Most people end up buying an annuity when they retire. An annuity converts your pension pot into a guaranteed income for the rest of your life. It's really important that you buy the right annuity for you because once you make your decision it can not be reversed. This decision will live with you for the rest of your life.
2. You'll need to make several key decisions about how you want your annuity to be set up. For example, you can choose a single life annuity which will provide an income for you alone. Or you can go for a joint life annuity instead whichl pays an income to you and then your spouse, partner or financial dependant after your death. They could take an income of half, two-thirds or equivalent to the amount you were getting.
3. You'll also need to decide whether you want a level or increasing annuity. A level annuity means your income will always be fixed at the same amount each year. So your income won't keep pace with inflation and your purchasing power will gradually be eroded over time.
Alternatively, you could choose an increasing annuity, which will either rise in line with inflation or by a fixed percentage each year. This way, the value of your income will be protected from the effects of rising prices. But the level of income you receive will be lower initially than it would be from a level annuity.
Read our guide on How to buy the right annuity to make sure you get these decisions and others right first time.
4. When the time comes to buy your annuity make sure you shop around for the best one. This is known as using the open market option or OMO. Annuity rates vary from one insurer to another, so it's really important you pick the most competitive one. The difference between the best and worse can be as much as 205, so make sure you don't miss out.
To find out how to use the OMO, read Do this or lose 20% of your pension.
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