What is an annuity? Annuity basics

Many people aren’t exactly sure what an annuity is, how they work or why you need one. If you’re in the same boat, then you’ve come to the right page. After spending years putting your money into your pension pot, you want to know what actually happens when you retire. Many people think you just simply withdraw your money on your retirement day and off you go, but it isn’t as easy as that, nor is it a wise option.

Typically, people use their pension pot to purchase an annuity that guarantees to provide an income for the rest of your life. A simple job? Well, no, not quite. Purchasing an annuity can be a daunting task because of the variety of choices available.

Open Market Option

The Open Market Option simply means what is says. It entitles you to take your pension pot from your pension provider and shop around on the annuity market to ensure you get the best rate for your money, instead of just taking the rate that will likely be offered. It is believed that only one-third of individuals who purchase an annuity take this option. It is pretty important that you do compare rates as you could potentially increase your retirement income by more than 72%.

Why do annuity rates vary?

Annuity rates vary just like they do between banks and building societies for say a savings account. Providers offer a better rate for certain types of annuity purchaser that they wish to attract. Lots of factors can affect annuity rates such as:

  • The Bank of England base rate.
  • The value and demand of government gilts and bonds.
  • Quantitative Easing (QE) programmes.
  • Mortality rates.

How much will I get?

There are different factors that affect what annuity rate you will get and are based on the following:

  • The size of your pension fund.
  • Where you live – different areas of the UK have higher mortality rates. The higher the mortality rate, then the lower the annuity rate as you are likely to live longer and the annuity provider would have to pay out for longer.
  • Your health – you may be eligible for an enhanced annuity rate based on poor health. There are 1,000’s of conditions that are covered and it is certainly worth exploring an enhanced annuity rate first. Conditions include: obesity, diabetes, high blood pressure etc.
  • The rate offered by different providers – make sure you shop around!

What annuities are there?

With such a wide range of choice, we definitely recommend speaking to an IFA or request a callback to talk through your options with Get Annuity.

Types of annuity:

Is an annuity right for me?

Annuities ensure you get an income from the day you retire until the day you die, but not getting the most from your annuity could see the value of your income erode with inflation and the rising cost of living. You can get annuities that increase in line with inflation which can help you keep up with the rising costs. If you do have any medical conditions, check to see if you are eligible through our enhanced annuity eligibility quote.


It is imperative that you make the right choice and get the best rate you can to start with, as often there is no going back. Make sure you use your Open Market Option and don’t just purchase an annuity from your pension provider.


An annuity is an important decision you must make as it affects the income for a potential 1/3 of your lifetime. Consider your options carefully. Still not sure? Another option could be income drawdown. Check out our article on Do I Take Income Drawdown or an Annuity?