A lifetime pension annuity converts your money purchase pension fund into an income for the rest of your life in retirement, no matter how long you live. They are are sold by life insurance companies and you can add various options and get different types depending on your personal needs and circumstances.
You can get these pension annuities to pay out to your spouse or partner on your premature death; or
you could get impaired life or enhanced annuity rates, which may give a higher income if you have an illness, take prescribed medication or have a medical condition, or are a smoker. The Pensions Advisory Service (TPAS) actually offers an online planner to help you think about the options that might be suitable for you.
These annuities pay out an income which depends upon the amount left in your pension fund after taking any tax-free cash. You must take any tax-free cash lump sum before your 75th birthday.
The income also depends on whether your fund includes national insurance (NI) rebates because you contracted out of the additional State pension; if so you must buy a 50% spouse’s pension with funds arising from these rebates if you are married or have a civil partner.
The income payable also depends on your state of health or lifestyle, and you could get a far higher income if your health or lifestyle threatens to reduce the length of time you are expected to live. Naturally another key factor in all this is your age. The older you are the higher the annuity rates on offer tend to be, because, on average, an older person has logically got fewer years left to live than a younger person. However, because people are living longer these days, rates are adjusted from time to time to reflect this. So if you delay making your purchase you could be taking a risk.
Your gender also effects the income you get. It is the norm for the starting income from the same size of pension pot to be higher for a man than for a woman, of the same age. This is because, based on averages again, the life expectancy of a man is actually less than a woman of the same age.
The benefits you choose also have an effect, for example: whether the plan is for you, or for you together with your spouse or partner; or if you opt for an escalating income. If you opt for it to pay out for a minimum number of years (say 5 or 10), even if you should die during that time, then your annuity income will be effected.
