An annuity is a product that you buy from a life insurance company. You usually buy it with your pension fund, but some can be bought with other money that you may have from savings or elsewhere.

The annuity will pay you a regular income throughout your retirement. Whilst you might think that you could be better off just living off the money as savings, annuities are specifically designed to guarantee you an income for the rest of your life. Trying to budget so that you have enough money to last a lifetime would be difficult, as no one knows how long they’ll live and it would be easy to overspend.