Interactive Investor

Please remember, SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial advisor before making any decisions. Pension and tax rules depend on your circumstances and may change in future.

What is an annuity and how does it work?

An annuity provides you with a guaranteed income in return for some or all of your pension pot once you reach 55 (57 from 2028).

Annuities can either provide an income for life, or for a fixed period of time. The amount of money you can receive will vary depending on how much money you put in, annuity rates at the time, and your personal circumstances. 

If you wish, you can have an annuity alongside another source of pension income, such as drawdown or UFPLS.

Annuity: a simple example

David has £400,000 in his pension. He chooses to take £100,000 out of his pension, leaving £300,000.

  • He takes the first 25% (£25,000) as a tax-free lump sum.
  • He decides to use the remaining £75,000 to buy an annuity, which pays him a regular taxable income.
  • The rest of the pension stays invested. At a later date he could buy another annuity, or choose another option such as drawdown or UFPLS.

How to buy an annuity with your ii SIPP

We don't offer an annuity directly, but you can take money from your ii SIPP to buy one. To do this you'll need to complete a 'Taking Pension Benefits' form.

Learn more about annuities

How are annuities taxed?

When you take money from your pension to buy an annuity, you can take 25% of that amount as a tax-free lump sum. You can use the remaining amount to buy an annuity. Annuity income is subject to income tax when you receive it:

  • If you have no income from any other sources, the first £12,570 is tax-free.
  • 20% on income between £12,571 and £50,270.
  • 40% on income between £50,271 to £150,000.
  • 45% on income above £150,000.

Important: Month 1 tax

When you first take a taxable income, you may be assigned a 'Month 1' emergency tax code. This could result in a tax overpayment in the first month. If so, you can claim this back from HMRC. 

What are the alternatives to annuities?

Drawdown

Take up to 25% of your pension tax-free, and set up regular or one-off income payments for the rest. Learn more


Lump sums (UFPLS)

A flexible way to take your pension income, as and when you need it. Learn more


How can Pension Wise help?

If you have a Defined Contribution pension scheme then you can access free, impartial guidance on your pension options.

This includes a face-to-face or telephone appointment provided by Pension Wise, a service from MoneyHelper.

New to ii?

New customers who open a SIPP before 31 May will pay no fee for six months – a saving of £12.99 a month. Terms apply

Already an ii customer?

Add a SIPP to your account before 31 May and we’ll waive the £10 per month SIPP admin fee for six months – saving you £60. Terms apply