An annuity is a financial product that pays a guaranteed income for life or an agreed amount of years. An annuity is purchased with monies from your pension pot, and is a way of ensuring your money will last for you. An annuity can be a fixed amount paid every year or it is also possible to purchase an inflation-linked annuity to rise each year in line with the retail price index.

Choosing an annuity might be a good option for risk averse savers, as the annuity payment can be relied upon for the rest of your life or the entirety of the agreed set period of time. However, there is the potential for you to receive less than the original amount depending on how long you live.