Lifetime Annuities | Money Saving Advisors
Understand lifetime annuities that guarantee income for the rest of your life, providing peace of mind in retirement.
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Worried about your pension pot running dry? A lifetime annuity could be your financial safety net. It takes your pension savings and turns them into a reliable, guaranteed income for life - no stress, no stock market risks, and no guesswork about how long your money will last.
Fixed retirement income
You can buy a lifetime annuity with some or all of your pension pot. It’s a way to turn your savings into a steady source of money - like a salary that never ends.
While you give up access to the lump sum you use to buy it, you gain peace of mind knowing that your income won't run out, no matter how long you live. And once set up, the income you get won't change unless you choose features like inflation protection, which can increase your payments over time.
Choosing your annuity options
Lifetime annuities can be tailored to suit your circumstances. The more options you include, the lower your starting income.
- Single or joint life: Choose whether the income stops when you pass away or continues for the "second annuitant" - your spouse or partner.
- Level or increasing: Level annuities pay the same amount for life. Increasing annuities rise each year, often with inflation.
- Guarantee period: This means annuity payments continue for a minimum number of years, even if you die early.
- Deferred annuities: These delay the start of your income payments until later, so your pension savings can grow tax-deferred in the meantime.
- Enhanced annuities: These offer higher regular payments if you have health conditions or lifestyle factors that reduce your life expectancy.
Tip: Remember that the annuity rate you get when you buy them is closely linked to interest rates - higher interest means higher income.
Summing up
Lifetime annuities are for those who value financial certainty and don't want to worry about market ups and downs. You trade flexibility for security - ideal if you like the idea of a steady future payments as you age.
Frequently Asked Questions
Can I combine a lifetime annuity with other retirement options?
Yes, and many people in the UK do so. You don't need to use your entire pension pot to buy a lifetime annuity. Some people take a hybrid approach: they purchase life annuities with some of their defined contribution pension scheme while the rest is invested in a drawdown plan. A strategy like this can offer a good balance between security and control.
What happens to the money when I die?
This depends on the options you choose when you set up the annuity with the insurance company. If you go for a single-life annuity with no guarantee period, the income stops when you pass away, and there are no death benefits paid to your estate. But you can choose to include features like a joint-life option, which continues to pay a portion of your income to a spouse or partner after you die.
Will a lifetime annuity affect my income tax?
Yes, income from a lifetime annuity can be taxed in the UK. After taking up to 25% of your pension tax-free, the annuity income is added to your earnings and subject to income tax. So, if your total income pushes you into a higher tax band, you'll pay more. The annuity provider will deduct tax through PAYE (Pay As You Earn), just like an employer would.
Can I change or cancel my annuity later?
Generally speaking, no - you can't reverse a lifetime annuity once it's set up. This is one of the key downsides and why it's so important to fully understand what you're buying. Once the provider gets your pension funds and starts paying you income, the contract is locked in. Some modern annuities come with flexibility - such as the option to pause or vary income - but these tend to be limited.
Is a lifetime annuity right for me?
It depends on your goals, lifestyle, and how you feel about financial risk. If you're looking to keep it simple and predictable, a lifetime annuity could be a smart choice. You'll know exactly how much income you'll get each month, and that income is guaranteed for life. Talking to an advisor can help you decide which pension options and financial products works best for your needs.
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