Lifetime Annuity


Last updated: 20/03/2014



What is a Lifetime Annuity?


A Lifetime Annuity is a financial product, sold mainly by life insurance companies, that provides you with a secure income for the rest of your life.

You buy this income by giving an insurance company some or all of your pension funds.

Lifetime Annuities come in a variety of types. Each of which contains a number of annuity options.

The options that you choose will affect the income that you will eventually receive.

The type of Lifetime Annuity that most retirees buy is a non-invested Lifetime Annuity. This is because it is relatively simple to understand and deemed to be less risky than other options.

The non-invested variety of Lifetime Annuity usually offers no option of future investment growth on your pension funds.

You effectively hand over your pension funds and in exchange, are paid a guaranteed level of income for the remainder of your life. You will usually be able to choose at outset whether you want the income to rise each year, but otherwise it will remain fixed throughout your life.

The rest of this webpage refers to non-invested Lifetime Annuities.

Types of invested Lifetime Annuities include With Profits Lifetime Annuities and Unit-Linked Lifetime Annuities. These both offer a chance of future income increases from investment fund growth.

ARTICLE SECTIONS:

WHAT IS A LIFETIME ANNUITY?
FACTORS THAT AFFECT YOUR LIFETIME ANNUITY OPTIONS
ADVANTAGES OF A NON-INVESTED LIFETIME ANNUITY
DISADVANTAGES OF A NON-INVESTED LIFETIME ANNUITY
NON-INVESTED LIFETIME ANNUITY RATES EXAMPLES
ASKING FOR A NON-INVESTED LIFETIME ANNUITY QUOTE
The amount of pension fund that will be used to buy your annuity after taking your tax-free cash.

Your age. The older you are the higher your annuity income.

Your health and/or lifestyle. Some annuity providers offer higher incomes for those whose life expectancy is likely to be shorter than the average. See the following pages for further information: enhanced annuity or impaired life annuity.

Your gender. This is because, on average, women live longer than men. However, this factor will become irrelevant from 21 December 2012 due to a European Court ruling.

Where you live. Some companies offer higher annuity rates based on your postcode.

The actual benefits you select. For example, whether the annuity income is level or it is escalating.


top of page

 

 

Below is a list of some of the main advantages of a non-invested Lifetime Annuity:

Of all the income options available, a non-invested Lifetime Annuity is the most simple to understand.

There is no need to review the contract.

You will receive a guaranteed income for life, and you can elect for your spouse/beneficiaries to receive a guaranteed income or a lump sum less tax upon your death.

There are no additional charges applied to the contract once in force. All charges are taken at outset and are reflected in the annuity rate offered.

A tax-free cash lump sum (also called a Pension Commencement Lump Sum) is available at outset.


top of page

Below is a list of some of the main disadvantages of a non-invested Lifetime Annuity:

Unless you choose the option of receiving an increasing income (for example: inflation linked or stated annual percentage rise of 3%, 5%, etc.), the income level will not change and cannot be varied in response to changing personal financial circumstances.

You lose control of your pension funds and your pension funds will have no opportunity of future growth.

Any options to provide benefits on death must be selected at outset and may result in a lower initial pension payment. These selected benefits cannot be altered in the future.

Inheritance Tax could be payable on any annuity payments paid to your estate after your death.

Should you die earlier than you expect, it is possible that the total income payments paid to you (and any dependant’s payments) will be considerably less than the value of the pension funds used to purchase your annuity.


top of page

Below is an example of recent Non-invested Lifetime Annuity rates.


EXAMPLE STANDARD ANNUITY RATES COMPARISON
ANNUITY PROVIDER ANNUAL ANNUITY INCOME
Just Retirement
£5,376.00
Hodge Lifetime
£5,088.00
Legal & General
£5,016.00
SAGA
£4,992.00
Canada Life
£4,920.00
Retirement Advantage
£4,752.00
Aviva
£4,320.00

The above figures are for illustrative purposes only. They are based on standard annuity rates for a person aged 65 with a pension pot of £100,000 buying a single life, conventional Lifetime Annuity with level income, no guaranteed period and the income paid in arrears without proportion. A Wokingham RG40 postcode was used for quotation purposes. The income figures shown are gross. Annuity rates checked: 14/01/2017. Source: Money Advice Service Annuity Comparison Tables



 


top of page

 

 

All Lifetime Annuity providers offer different annuity rates and options and depending on your circumstances it’s possible that, by shopping around to find the best Lifetime Annuity quote, you could get as much as 40% more retirement income.

In many cases, this means that you could be hundreds (and in some cases, thousands) of pounds better off for each year of your retirement!

You can begin your search for the best Lifetime Annuity quote by using an annuity rates calculator or by simply contacting an adviser.


top of page