According to a definition, “An income annuity is a financial product designed to swap a lump sum amount for guaranteed periodic cash flow (e.g., monthly or annual payments). An income, or immediate annuity, generally starts payment one month after the premium is paid and may continue for as long as the buyer is alive.” Broadly speaking we can conclude that an annuity is a type of retirement income product that you purchase with some or all of your pension bank. This is usually done as it pays a regular retirement income either for life or for a set period. This stream of guaranteed lifetime income payments using a single lump-sum of money is called a premium.