A financial instrument offered by an insurance company that resembles a pension - i.e. a series of payments for the remainder of an individual’s life. The insurance company bears the uncertainty associated with the rate of return that will be achieved on the underlying assets (investment risk) and how long the person will live (longevity risk).

Annuities come in many different varieties, with optional features including rates of increase, guarantee periods and payments for surviving dependants. The common theme is that protection against longevity risk and investment risk is provided in a single bundled product. The cost of annuities rises as expectations of life increase.