Compulsory Purchase Annuity

You can use your pension pot to buy a guaranteed income that will be paid to you for the rest of your life. This is called an annuity.

If you have money invested in a pension plan – with Standard Life or another company, you can normally use this to buy our Compulsory Purchase Annuity. This type of annuity offers you the security of a guaranteed taxable income for the rest of your life. You could also normally choose to take up to 25% of your pot as a tax-free lump sum, along with a smaller guaranteed taxable income.

You can buy an annuity from any annuity provider. This is known as an Open Market Option. You don’t have to take it from the provider of your pension plan. We’ll help by providing information and support to help you make the right choices.

Remember that buying an annuity is a long-term decision and once it’s set up, you can't cash it in or make any changes.

This option might suit you if:

• You like the security of knowing that you have a guaranteed regular income for the rest of your life
• You want to receive your pension income at the same time as taking your tax free lump sum
• You want to use all or part of your Income Drawdown pot to secure an income

How much income will you get?

The income you'll get will depend on a number of factors. The most important ones are:

• The amount of money you have in your pot available to buy the annuity
• Your age
• Your sex
• Annuity rates
• Your residential postcode
• The options you choose – for example, will the annuity include regular increases, or continue to be paid to your dependants when you die

The Standard Life difference

• You’re supported by Standard Life’s award-winning customer service. We’ll take you through the transition from having a pension fund to receiving an income – smoothly and easily

• An annuity is a long term decision so it’s good to known you’re in experienced hands. Established in 1825, Standard Life provides life assurance and pensions, investment management to over 6.5 million customers worldwide.

Buying a Standard Life annuity with a pension plan from someone else

If you want to buy your annuity from Standard Life, but hold a pension plan elsewhere, you'd first take any tax-free lump sum from your existing pension provider. You’d then use the remainder of your pot to buy an annuity from us – a guaranteed income for the rest of your life.

Buying an annuity needs careful thought. We'd strongly recommend you get financial advice to make sure you choose the option that is best for you. There may be a cost for this.

Are you contracted out?

Have you been contracted-out of the State Second Pension (S2P) and had your National Insurance contributions paid into your pension plan? These contributions are a separate part of your pension fund called Protected Rights. You can also use this part of your pension fund to purchase a Compulsory Purchase Annuity.

It's important to consider your choices carefully. Because once the annuity is set up, you can't cash it in or make any changes.

• You have a number of options to choose from to make sure the income you get for the rest of your life meets your needs and the needs of those who are financially dependent on you. For example, it is important to consider how inflation may reduce the purchasing power of the income over the years.

• Adding more options generally reduces the amount of income that you get initially

• When you die, your pension benefits will stop unless you specifically build in an income for those who are financially dependent on you or add a guarantee period of up to 10 years

• Contributions from being contracted-out of the State Second Pension (S2P) are a separate part of your pension fund called Protected Rights. If your pension fund includes protected rights, and you are married or in a civil partnership when you buy your annuity, this part of your pension must continue to be paid to your husband, wife or civil partner upon your death at half the rate payable when you were alive

• If your pension fund includes protected rights money (for any period you were contracted out of the State Second Pension), the maximum guarantee period for this part of your fund is 5 years

• Think carefully about the choices you make. Because once you've bought this plan and the 30 day cancellation period has expired, you can't change any of the options and you can't transfer to another provider

Find out more

Before buying a Compulsory Purchase Annuity you need to be fully aware of the risks and commitments. You should read the Key Features (PDF, 191kb) and the rest of this section.

Get financial advice

Buying an annuity is a long-term decision. It’s also one you can’t change later, so it’s worth seeking professional advice. You can do this by contacting Standard Life Direct on 0845 272 8810 (call charges may vary) or speak to your financial adviser, there may be a cost for this.

Standard Life Direct is provided by Standard Life Client Management which advises on, and sells products from, subsidiaries of Standard Life plc and some external providers.

One of the main benefits of an annuity is that you can build in options to make it really suit your needs and work for you in retirement.

Options to consider include:

• How often the payments are made - this could be monthly, every three months, every six months or every year

• When your payments will start - you can have them paid in advance so you'd get the first payment as soon as the annuity was set up, or in arrears where the first payment would be made one 'payment period' after we set up your annuity. For example, if your payments are to be made monthly in arrears, the first payment would be one month after your annuity was set up

• An income that increases each year by a fixed percentage, up to 8.5% per annum

• An income that keeps pace with inflation by increasing and decreasing in line with the Retail Prices Index (RPI). Be aware that RPI can go down as well as up, so your income could go down

• An income for your wife, husband or civil partner who would still get an income if you died before them

• An income for another adult who is financially dependent on you, children or a child with special needs. We may be able to help you set up an income for them if you die first

• Guaranteed payments for a set period of time. This means that if you die within that time, payments will continue to the end of the guarantee period. You can choose a guarantee period of up to 10 years for an ordinary pension fund (this will be the value of payments made by you and/or your employer)

We'll accept the proceeds of any pension fund as long as:

1. Any tax-free lump sum you want to take has already been paid to you
2. The amount being used to buy the annuity would otherwise be used to provide benefits under a pension plan
3. The rules of the pension plan allow this kind of purchase.

If your pension plan is already invested with Standard Life, there are no minimum or maximum limits on the pension pot value. If your pension plan is with another provider, the minimum amount is £5,000 and the maximum is £250,000.

Pension pot value more than £50,000? Our active money SIPP could offer you greater flexibility.

Income tax

The income you receive from your annuity will be taxed under the Pay as You Earn (PAYE) system.

You can find out more on the HM Revenue & Customs website.

This link is provided for general information purposes only. Standard Life accepts no responsibility for information contained in the site or for the site not being available at all times.

Tax rules and legislation may change. The value of tax relief may change and will depend on your financial circumstances. The information we have given is based on our understanding of law and current HM Revenue & Customs practice.

Are you old enough?

You cannot normally buy an annuity before age 55. There are special rules to allow pensions to be paid before age 55, due to ill health, for certain conditions.

We include the charges and costs for your annuity when we work out how much income your plan will buy. Once your plan is set up, you won’t pay any other charges.

Our documentation e.g. quote and policy schedule will show these charges.