An annuity is bears similarities with pensions but there are some differences. The main difference is that you pay a company a lump sum of money, and they then have to provide you with regular instalments for the rest of your life. Annuities in this case then are a bit like insurance, but act like a pension scheme.

Annuities in theory could be infinite; you will not stop receiving regular instalments. However, our lives are not infinite so eventually these payments will stop. But you can live your retirement years out in the knowledge that you will always be receiving money on a regular basis.

The idea of annuities will sound appealing to many people, but there are a number of factors that will affect the amount of money you will receive and how often this will happen. To begin with you will need to pay a lump sum, in order to receive these. The amount you pay will affect the amount you receive. So the bigger your lump sum is the bigger your regular payments will be.

Annuities can be used as an alternative to a traditional pension plan or they can act as an additional way to receive regular payments in retirement. While this will be appealing, it is recommended be many people that you carefully consider your annuity plan. This is because when you have agreed upon the amount of money you will have to pay, and how much you will gain, these arrangements cannot be changed. Arguably this is one of the major drawbacks of having annuities. There are many variables and a number of plans that can be chosen from, but once a decision is made that decision becomes final.

Overall there are a number of benefits that annuities have, but at the same time there are a number of disadvantages. The advantages are as follows.

• Lifetime financial security. Guaranteed payment s for the rest of your life.
• There is no investment risk like other types of pension scheme. Could be considered a safe option when compared to SIPP’s for example.
• Simple choices and variables.

However as already mentioned in this article there are some drawbacks. The drawbacks are as follows.

• A large lump sum will be needed to acquire annuities. In this case then they may not be suitable for everyone.
• The control of your money is lost.
• Once you have decided on an annuity scheme you cannot change it.