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?

If you have a spouse or partner, one of the key decisions you’ll need to consider is whether to apply for a single life annuity or a joint life 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 named spouse, partner or financially dependent partner following your death.
    Policy ends: Upon the death of both yourself and your spouse, partner or financially dependent partner.

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 your annuity.

Purchasing a joint life annuity would allow your chosen financially dependent partner (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 life annuity provides you with a regular, guaranteed income until your death, upon which the policy ends.

It could be a suitable option for those without a spouse or partner, or in the situation of a partner having sufficient pension arrangements of their own or a shorter life expectancy.

A single life annuity may be suitable for those who need, or prefer, the certainty of a guaranteed retirement income from their 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 a guaranteed income for life like a single life annuity but with the additional benefit of transferring to your surviving named spouse, civil partner or financially dependent partner 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 life annuity. The higher the proportion you set, the lower your retirement income will be.

A joint life annuity may be suitable for those who wish to provide a regular income to a financially dependent partner in the event of their death. It can help support them financially in the event they are without their own pension arrangements, or these will not cover their long-term financial needs. The initial income will usually be lower if a joint life annuity is selected.

What happens to my single lifetime annuity when I die?

If you choose a single life 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 and guarantee periods. 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 a joint life annuity would see your chosen spouse or partner continue to receive a regular income for life.

What happens to my joint lifetime annuity when I die?

On your death, a joint life annuity would see your income transfer to your surviving spouse, civil partner or financially dependent partner. This would be a proportion of the income you were receiving before your death.

This proportion is a percentage figure, selected by you when purchasing the annuity. You can set this as high as 100% or any percentage you wish however, this will impact the income you 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 a guarantee period to a joint life annuity. Adding death benefits to your annuity will impact the amount of income you receive. It is also worth keeping in mind that when selecting a joint life annuity as well as value protection, the percentages available under both will be impacted.

Seeking advice on single and joint annuities

Planning your financial future and deciding on how to best use your pension pot 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, a government service from MoneyHelper. 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.

If you need further assistance, you may wish to get in touch with an independent financial adviser. You can find a local financial adviser using the Retirement Adviser Directory on the MoneyHelper website.

0800 011 3797

Annuity Ready allows you to compare the whole of the open market annuity rates. We provide you with a service to search single and joint life annuity rates, along with the flexibility to adjust your quotes by adding/excluding additional benefits or adjusting the percentage of income left to your spouse or partner after your death.

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, JUST, Legal & General and Scottish Widows.

Simply enter your details once and we’ll search the open market to see if we can 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.