Annuities Explained

What is an annuity?

An annuity is an insurance policy that you can buy with some, or all, of your pension pot savings as a means of providing you with a regular, guaranteed income.

There are different types of annuities available that can provide different levels of income for you. It’s therefore important to consider your personal circumstances when choosing an annuity that’s right for you.

Knowing how much money you have to spend in retirement can help you financially prepare for your future.

The most common type of pension related annuity is known as a lifetime annuity. This provides you with the security of a guaranteed income stream for the rest of your life.

Once you have bought an annuity you can’t change your mind, so it’s important to research your options and shop around for a product that suits your needs.

What is the difference between a single annuity and a joint annuity?

One of the key decisions you’ll need to consider in your research is whether to apply for a single lifetime annuity or a joint lifetime annuity.

Both options provide a guaranteed income for life but work differently. The main differences are summarised as follows:

  • Single annuity
    Cover for: One life.
    What is it: A regular income for life.
    Policy ends: Upon your death.
  • Joint life annuity
    Cover for: Two lives.
    What is it: A regular income for your life, a proportion of which will then transfer to your spouse, partner or financial dependent following your death.
    Policy ends: Upon the death of either yourself or your spouse, partner or financial dependent, whichever is latest

Your personal and financial circumstances will influence the income rate you can receive, so it’s important to understand the differences in products and factor this into your decision.

For example, illness or other health considerations that contribute towards your reduced life expectancy could see you receive a higher, regular income from an annuity over a shorter lifetime period compared to being in good health where you would instead receive a lower, regular income spread across a longer lifetime period.

In either scenario, purchasing a joint life annuity would allow a chosen financial dependent (e.g. a spouse or partner) to continue to receive a proportion of your annuity income in the event of your death. This is an additional benefit that would see them receive this income for the rest of their life.

What is a single annuity?

A single annuity provides you with a regular, guaranteed income until the event of your death, upon which the policy ends.

It could be a suitable option for those without a partner or financial dependents, or in the situation of your partner having a higher pension arranged or has a shorter life expectancy.

A single lifetime annuity may be right for you if you need, or prefer, the certainty of a guaranteed retirement income from your pension savings.

It may not be suitable to those who seek more flexibility about how much to take as income or if you want to have future access to all of your pension fund.

What is a joint annuity?

A joint-life annuity provides you with the same guaranteed income for life as a single life annuity but with the additional benefit of transferring to your named spouse, partner or financial dependant should you die before them, paying them a regular income for the rest of their lives.

The income paid to your spouse, partner or financial dependant will be a proportion of the income you were receiving before your death. You decide what this proportion will be at the point of buying your joint-lifetime annuity. The higher the proportion that you set, the lower that your retirement income will be.

A joint life annuity may be suitable to those who wish to provide a regular income to a financial dependent in the event of their death. It also helps cover their chosen dependent in the event they are without their own pension arrangements or if their pension payments won’t cover their long-term financial needs. The initial income will usually be lower if a joint lifetime annuity is selected.

What happens to my single lifetime annuity when I die?

If you own a single lifetime annuity, the policy will likely end upon your death.

However, there are additional benefits and options you may wish to consider, such as value protection or an annuity payable for a minimum guarantee period. These additional features may allow a lump sum or ongoing income to continue to be payable to your beneficiaries or estate following your death.

The clear distinction here is that whereas a joint lifetime annuity would see your chosen spouse or partner continuing to receive a regular income for their life, a single lifetime annuity featuring an additional benefit could see your chosen beneficiaries receive a lump sum payment or a continuing income for the remainder of the guaranteed period.

What happens to my joint lifetime annuity when I die?

On your death, a joint lifetime annuity would see your income transfer to your chosen beneficiary. This would be a proportion of the income you were receiving before your death.

This proportion is decided as a percentage figure selected by you when purchasing the annuity. You can set this as high as 100% or whatever percentage you wish but this impacts the income you will receive.

With Annuity Ready, you can compare and edit quotes to adjust different percentages and view how rates differ depending on the different scenarios you select.

You can also add additional benefits and options, such as value protection or an annuity payable for a minimum guarantee period to a joint lifetime annuity. These will impact the amount of income you receive.

Seeking advice on single and joint annuities

Planning your financial future and reaching a decision on how to best use your pension pot savings can be a daunting task. Some people may wish to seek advice on buying an annuity first or undertake further research.

You are entitled to free guidance at retirement via Pension Wise, the UK government’s Money and Pensions Service. This is via a phone call or face-to-face appointment that provides you with free, impartial guidance, available to anyone aged 50 or over with a defined pension contribution. This is a single appointment only.

Additionally, there are further government organisations offering free and impartial money advice, including the Money Advice Service.

Annuity Ready allows you to compare the whole of market annuity rates. We provide you with a service to search single and joint annuity rates, along with the flexibility to adjust your quotes by adding/excluding additional benefits or adjusting different percentage proportions of a joint lifetime annuity.

Compare annuity rates: Single and joint lifetime annuities

If you have made the decision to purchase a single or joint lifetime annuity, you are encouraged to shop around to find a rate that meets your requirements.

Annuity Ready is a comparison service that can help you compare quotes across the whole of the market, including Aviva, Canada Life, Hodge, JUST, Legal & General and Scottish Widows.

Simply enter your details once and we’ll search the open market to find you a higher income than your current pension provider. You can even adjust and tailor the quote online to view different rates based on your requirements.