An annuity is a contract with a life insurance company that will pay you a guaranteed, regular pension income for life in return for a capital sum. The capital sum comes from your retirement fund. You will pay income tax and Universal Social Charge (USC) on the income that you receive.

The amount of regular pension income you get depends on a number of things such as:

the amount of money from your retirement fund that you invest in the annuity

the type of annuity you want

your age and state of health when you buy the annuity 

the percentage of your investment that the life assurance company agrees to pay you as a regular pension. This is called the ‘annuity rate’.

Before buying an annuity, you need to decide:

Do you want part of your pension to continue to be paid to one or more dependants after you die?

Do you want a pension income that will increase regularly, or one that stays level?

The income you get from your annuity will be less if you choose:

an escalating annuity – an annuity that increases each year or

an annuity that provides some payment for your dependants after you die.

If you choose a level pension, you will get a bigger income now but inflation will gradually reduce its value as you get older.