The Value of your fund (less any cash payment from the PCLS) can be used to buy a conventional lifetime annuity. This will provide you with a guaranteed income for the rest of your life. The amount you will get depends on a number of variables including, the annuity rates at the time, the value of your fund and the terms/options you choose such as spousal benefits.
An annuity is arranged on a basis guaranteed at the outset by the annuity provider (insurance company) on the terms selected by you. Annuity income is treated as earned income for tax purposes.
These annuities are termed ‘conventional’ because up until relatively recently there have really been the only choice for the vast majority of retiring UK individuals. They have been around for a very long time and to this day (within the UK) remain the most common choice to convert a pension fund into income.
A lifetime annuity is set up on a fixed contract basis – that is you know in advance the terms upon which it will be paid. Buying a lifetime annuity is a ‘one-off’ purchase and you will not see your income reduce if annuity rates go down.
As it is a ‘one-off’ purchase you will not benefit if annuity rates were to increase in the future. You cannot change the shape of the benefits from your initial choices.