A conventional annuity is an insurance contract, whereby the insurance company makes regular payments, usually monthly, to a named individual (the annuitant) for their lifetime.

Annuities can also be arranged to continue paying a second or subsequent beneficiary after the first annuitant dies, until that person dies as well.  This can normally be at the same level of income, or a proportion, such as 50% or 66%.

Annuity payments can either remain level, or can increase at either a fixed percentage each year, or in line with the Retail Prices Index (RPI).  This escalation means a lower initial income compared with a level annuity.

In addition, annuities are available which link future income payments to the performance of an underlying investment, most commonly the provider's with-profits pension fund.

The term "annuity" generally refers to the actual contract that makes payments. Commonly it is used to refer to a contract that is making payments (with the means of saving being referred to as a "pension"). In this country the conversion of a pension fund into a Pension Annuity is the most common method of obtaining pension income, and this has led to a large market for annuities.

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