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What are the costs of delay in converting your personal pension to an annuity?

Naturally, you will want to ensure the maximum possible lifelong income from your annuity. What you may not realise, however, is that even the shortest delay in converting your pension fund to an annuity will reduce this income. Quite simply, the longer you delay, the higher the impact on your income.


  • Delaying the purchase of a standard annuity by a year will lose you a year’s income – a far greater sum than any potential increase in rates in a year’s time.
  • You also need to consider the implications of increasing age on your health. It makes sense to enjoy the income now and for longer – whilst you’re still healthy. With mortality drag, those dying sooner cross subsidise those who live longer.
  • People who remain invested are at the mercy of the market. If the value of your pension fund decreases, so does the size of the annuity you can purchase and therefore, the income you will earn from it.



Male or female with £100,000 in a pension choosing a level annuity, no guarantee paid monthly in advance, assuming that the existing fund continues to grow at 5.0% per annum (after charges) and retiring at ages 55, 60 and 65. By delaying either 1, 3 or 5 years it will take a number of years before a deferred higher annuity income will 'catch-up' with the income already paid, or number of years to break even. This time could be longer than the individual’s life expectancy (years to live), or mortality as follows:


Male, years to break even
age now years to live 1 year 3 years 5 years
55 28 14 13 12
55 24 12 11 11
65 20 11 9 9


Female, years to break even
age now years to live 1 year 3 years 5 years
55 32 14 13 13
60 28 13 12 12
65 23 12 11 10

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