Lifetime Annuity

A lifetime annuity converts your money purchase pension plan into an income for the rest of your life, however long you might live. It is a generic term for an annuity that pays an income for life.

Annuity income

Lifetime annuities are sold by life insurance companies (the annuity providers) and you can get various types and different options depending on your particular needs and circumstances. How much annuity income you’ll receive from a lifetime annuity depends on various factors:

Tax-free cash

The amount left in your pension fund after taking any tax-free cash is the amount used to buy your annuity income.

National insurance rebates

Whether your fund includes national insurance (N I) rebates because you contracted out of the additional State pension. See protected rights annuity for details.

Retirement income

Your health or lifestyle can result in you getting paid a higher than normal retirement income if your life expectancy is likely to be shortened. See enhanced annuity rates for details.

Your age

Your age makes a difference. The older you are the higher your annuity income is likely to be.

Life expectancy

As people are living longer these days, annuity rates are adjusted from time to time to reflect this. So if you delay purchasing your annuity you could be taking a risk. And of course annuity rates may rise and fall for various reasons.

Your gender

Your gender will effect the starting income from the same size of pension fund. It is higher for a man than for a woman who is of the same age. This is because, on average, the life expectancy of a man is a bit less than a woman of the same age.

Annuity options

The annuity options you choose, for example, whether the annuity is for you alone; or for you and your spouse or partner, see joint life annuity; if the annuity income is level or escalating; or if it is guaranteed to pay out for a minimum number of years, even if you die prematurely during that time.

Postcode annuities

There’s also the issue of where you live and postcode annuities. These days many companies alter the rates they offer depending on where you live; higher rates if you live around Glasgow, for example, and lower ones if you live around Surbiton, in Surrey. Why, because those around Glasgow aren’t expected to live so long, so the annuity payments can be higher because they are expected to be payable for a shorter period of time. Postcode annuities can make quite a difference.