An annuity is a type of insurance product that provides regular income during retirement, usually in exchange for a lump sum. Most people use a lump sum from their pension savings to invest in an annuity. Annuities are a very popular product in the retirement sector; in fact, the UK annuity market is the largest in the world. There are many different types of annuities, and how much your annuity income could be worth depends on several factors including the type of annuity itself.

There are two main types of annuities – variable annuities which pay a variable income based on different factors, and fixed annuities which pay a fixed, guaranteed income throughout the agreed term of the annuity. Within these types, there are different annuities like escalating annuities, inflation linked annuities, lifetime annuities and impaired annuities. Your annuity income obviously depends on the type of annuity you buy.

Two factors that impact any annuity are of course the size of your pension pot and current annuity rates. Generally speaking, all other things being equal, the bigger the lump sum the higher the annuity income, and the higher the annuity rates, the higher the income.

Other factors that will impact your annuity income are your age, gender, location and health and lifestyle habits. For example, impaired annuities are specially designed for those who meet the health and lifestyle criteria and have a shorter than average life expectancy. This allows the annuity provider to pay a higher annuity income than they would in a conventional annuity.

Variable annuities like escalating annuities, or inflation linked annuities, pay out a variable income. Escalating annuities increase each year at a fixed percentage, while inflation or RPI linked annuities are linked to inflation levels. The annuity income received from these types of annuities is generally lower in the initial stages when compared to a conventional annuity.

One way to calculate the maximum annuity income you could receive is to use an online annuity calculator. This is a quick and convenient way to find out if you could be eligible to receive more than your current offer. Many people who could receive much more annuity income by way of an enhanced annuity are simply not aware of this and therefore commit to a conventional annuity – thereby losing out on substantial potential extra income. A simple check using an online annuity calculator can help you find out exactly how much you could be eligible to receive and if you could be eligible for an enhanced annuity.