Pension Planning - Pension Choices

If your pension is to be derived from a defined contribution scheme, your pension at retirement will normally be provided by using your pension fund to buy an annuity.

An annuity is an investment where you swap a lump sum - in this case your pension fund (after deduction of any tax-free lump sum) - for an income, in this case a pension payable for the rest of your life.

There are different types of annuity. Your choice depends on the type of pension you want for yourself and for anyone who is dependent on you.

As an alternative to buying an annuity, you could leave your pension fund invested and take an income direct from it. Even if you go down this route, under current rules, you will still have to use the remaining fund to buy an annuity by age 75 at the latest (possibly to be increased to age 80).

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