It is a type of insurance policy that provides a regular income in exchange for a lump sum. On retirement, holders of personal pensions must use their pension pot to purchase one, after taking up to 25% of their fund as a tax-free lump sum if they wish. They can defer that purchase until age 75, by taking 'drawdown' from their pension, but eventually they must convert to an annuity. Their fund disappears, and the once-only purchase sets their income for life. The payout is based on the average length of time people this age group live, not the individual's health.
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