Lifetime Annuities


A lifetime annuity is a retirement option that offers a fixed, guaranteed income for the rest of your life.


How does it work?

Lifetime annuities are usually sold by insurance companies and other commercial pension providers. When you purchase one, you essentially exchange your personal pension pot for the promise of guaranteed income until you die. The level of income you receive will be calculated according to a number of factors – including the size of your pension pot, your health and lifestyle, and the current state of the economy.

What are the benefits?

The key benefit of a lifetime annuity is security. Once you’ve purchased your annuity, you have a fixed, regular income that you should be able to count on for the rest of your life. This makes it easier for you to calculate a workable budget for your retirement years without the risk that your income will fluctuate or disappear.

Providers calculate their annuity rates in part based on how long they expect to be providing your income – in other words, how long they expect you to live. This means they are one of the very few insurance products which actually offer more generous rates if you’re in poor health. If you have a condition that might shorten your expected lifespan – such as heart disease, diabetes or a history of heavy smoking – you may qualify for enhanced annuity rates and a significantly higher income.

What are the potential drawbacks?

One major drawback of a lifetime annuity is a lack of flexibility. Once you’ve made your purchase, there’s usually no way to change your mind. Also, your annuity payments stop as soon as you die – even if this happens shortly after you buy an annuity – so it’s possible that the money you get out of a lifetime annuity won’t match the value of the pension pot you put in.

Lifetime annuities cannot be transferred to your next of kin or any other dependent, so if you want to leave something behind for your family, you may wish to explore other options.

How can speaking to an Independent Financial Advisor help?

Annuity rates vary considerably across different providers, and you have many options available to you. In light of the recent pension reforms, annuities are currently in a state of transition, and new products are frequently entering the market. An independent financial advisor can provide you with the most up-to-date information about annuities, search the whole market for the best rates available to you, and inform you of any additional benefits you may be eligible for.

 

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