Hi Barry 

This is one way of taking income from a pension, there are many other options available.

When one retires, you have the option of taking 25% tax of the pension pot as tax-free cash and then use the remaining fund to purchase an annuity. A retirement annuity provides a regular ‘guaranteed’ income that can provide income for the rest of your life or for an agreed number of years. Annuities are sold by insurance companies.

The value of the benefits you receive from an annuity will depend on the following factors like; size of your pension pot, age, annuity rates, the annuity types and features.

There are several annuity options to choose from: Single or Joint Life – In a single life pension, the annuity income will only be paid during your lifetime and it will stop on death. However, in a joint life annuity the income will continue for the surviving spouse, civil partner or other dependant even after death. A joint life annuity usually pays out a lower regular income than a single life. Nominee annuity – The nominee receives the ongoing annuity after the person’s death.
Successor’s annuity – This is paid to the person who is nominated by the dependant, nominee or other successors of the deceased member.

All the above would depend on the terms and agreement with the provider. Annuities are taxed as an income and the annuity providers will usually pay this net of income tax. You have a choice whether you want to receive the income annually, half-yearly, quarterly or monthly.

Buying an annuity might not always be the best solution for a client so it is advisable to also look at alternatives that include:

Taking several small lump sums from the pot
Taking the whole pension as a single lumpsum
Delay in taking any amount from the pension pot
Flexibly taking income from the pot through pension drawdown arrangements.

Seeking Independent financial advice before making this decision may well be of benefit. It is recommended to shop around before purchasing an annuity since once you purchase it, the decision is irreversible.

Let me know if you have any further questions. 

Thanks Adam 

A good question from Barry, and a good reply from Adam, thank you both for posting it