Immediate life annuities, or purchased life annuities, provide a guaranteed income for the rest of your life. Unlike other annuities, these are bought with money other than from your pension fund. This may be from savings you have in the bank, from an investment, some inherited money, or with the tax free cash from your pension.

Only part of the income you receive from purchased life annuities is liable to income tax.

Pros

• You purchase this annuity with your own money.
• Only part of the income you receive from a purchased life annuity is subject to income tax (tax rules may change in the future).
• Immediate life annuities promise to pay you a regular income for life.
• You can customise your annuity to suit you:
  • You can arrange for your dependant to receive an income after you die. 
  • You can choose to protect your income against inflation. 
  • You can choose to have an income that stays the same or one that starts at a lower amount but increases each year.
  • You can choose for some of the money you invested to be paid back to your estate if you die within a set period of time.

Cons

• Your annuity is for life. Once you’ve bought it - you can’t cash it in, swap it for something else or alter your annuity options. 
• You could die before getting your money’s worth from your annuity.
• You don’t have the flexibility to control the level of income you receive once it’s started.
• Unless you choose otherwise, your dependants will not be automatically protected.
• Unless you choose otherwise, your income is not automatically protected against the effects of inflation.

If you have a some money available and want to guarantee an income for the rest of your life then this annuity could be for you.

You can buy an annuity from an insurance company or through a financial adviser.

If you need more help choosing your annuity you could speak to an insurance company who may refer you to their advisers. You need to remember not all providers offer advice, and if they do, they may only be able to give information about their own products. If you want advice about the whole of the market, you’ll need to speak to an independent financial adviser.

Do your research - decide whether an annuity is right for you by looking at all the available options and considering the pros and cons of each.
 
Start early - take your time to consider the options available on an annuity, choosing those that best suit your immediate and long-term needs. Annuity rates can change, if you buy now you may get a better rate than if you waited. However this could work the other way around as well, you may get a better rate by waiting. Remember, once you buy an annuity, you are locked in and it cannot be changed.

Remember you’re in control - you have the final decision on all the choices you make.

Don’t be afraid to ask - if you have any questions about annuities generally or about a specific product, make sure you get advice before making a decision.