When you buy an annuity you effectively hand over your pension pot to the annuity provider (usually an insurance company).

In return it promises to pay you an income for the rest of your life. If you die ‘too soon’ then what happens, entirely depends upon the type of the annuity that you have purchased.

Some annuities provide a guarantee that in the event of early death the income will continue to be paid for the balance of the guaranteed period.

For example you may apply for a ‘ften year’ guarantee. If you died after two years of annuity payments the annuity would continue to be paid for the next eight years.

At the end of the annuity guarantee period death results in no further payments. If you buy an annuity without a guaranteed period, the annuity income stops on your death. You can therefore work out how long you have to live to get back in annuity income the full amount of your fund but there is a risk here – that you die too soon.

The risk to the annuity provider is that you live too long! There are alternatives to the purchase of an annuity.

Unsecured pension (or income drawdown) keeps the fund invested from which income payments are taken. This however is not without risk or cost and may not be suitable for you.

However, in the event of your death before you purchase an annuity your estate might benefit from the residual fund less a tax charge.

Pension Release is an independnet marketing website that introduces to Retitement Solutions an Independent Financial Adviser. Retirement Solutions can get you the best annuity rates.