Pension choices: Annuity or ARF

When you want to access your pension pot, you can either choose flexible or guaranteed income or a combination of both.  The right choice depends on a lot of things such as

  • your attitude to risk
  • whether you have a partner or children
  • your health and your tax position

This tool explains which may be more suitable.  Because accessing your pension is an important decision, we recommend that you get financial advice.  You should not base your decision to invest solely on the information detailed below.

Progress   

Annuity or ARF?

loading...

Answer a few simple questions to understand the differences between the two. You are not restricted to one or the other, you can choose a combination of both.

Are you interested in options other than guaranteed income?


Choice and flexibility: No

If you want a guaranteed income payable for life an annuity may be your best option.

Next step: Find out more about annuities and speak to your financial adviser.

Choice and flexibility: Yes

If you want to choose how much and when you take your income, then the ARF option may be your best choice.

Are you in good health?


Choice and flexibility: Yes

Good health: No

If you're ill and purchase an annuity your income will stop when you and your partner (if joint life annutiy) die. An ARF may be an alternative as your fund can be passed to your family on death.

Next step: Find out more about annuities and ARFs and speak to your financial adviser.

Choice and flexibility: Yes

Good health: Yes

If you're healthy, you may want to consider an ARF. You can control how and when you take your income unlike an annuity.

Do you want to take the money out of your pension as and when you need it, rather than commit to a set amount?



Choice and flexibility: Yes

Good health: Yes

Take money out as and when: No

If you want certainty over your income you should choose an annuity – although be aware that this certainy means no flexibility. You're locking yourself into annuity rates now (although if they were to fall, this would be a good thing.)

Next step: Find out more about annuities and speak to your financial adviser.

Choice and flexibility: Yes

Good health: Yes

Take money out as and when: Yes

The ARF gives you much more flexibility over when you take your money from your pension pot – But if you take out too much your ARF may run out of money. An annuity will be based on annuity rates and your pension pot size now.

Do you want to keep your pension pot invested, giving your money the chance to grow?



Choice and flexibility: Yes

Good health: Yes

Take money out as and when: Yes

Investment growth: No

If you're worried about investment risk, you should consider choosing an annuity – although you can choose the ARF option and invest in lower risk funds. You can still buy an annuity with your ARF at a later date.

Next step: Find out more about annuities and ARFs and speak to your financial adviser.

Choice and flexibility: Yes

Good health: Yes

Take money out as and when: Yes

Investment growth: Yes

By investing in an ARF, you can give your money a chance to grow. Remember your investment may go down as well as up, which could affect your income. You need to find the right balance of risk and potential reward for you.

Do you want to leave money to anyone after you die?



Choice and flexibility: Yes

Good health: Yes

Take money out as and when: Yes

Investment growth: Yes

Leave money to anyone: No

With an annuity, the income stops when you (and your partner with a joint annuity) die. With an ARF, any money left in the fund can be left to your family. Different taxes apply depending on who you leave it to.

Next step: Find out more about annuities and ARFs and speak to your financial adviser.

Choice and flexibility: Yes

Good health: Yes

Take money out as and when: Yes

Investment growth: Yes

Leave money to anyone: Yes

With an annuity, the income stops when you (and your partner with a joint annuity) die. With an ARF, any money left in the fund can be left to your family. Different taxes apply depending on who you leave it to.

Next step: Find out more about annuities and ARFs and speak to your financial adviser.