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Find out moreWritten by the Retirement Line Team
An annuity lets you turn your private pension savings into a regular income. Your annuity provider pays out this income in return for the money you have saved into your pension during your working life.
When choosing an annuity, one option is a lifetime annuity. Also known as a conventional annuity, this pays you an income for the rest of your life. You enjoy a guaranteed income level, regardless of what happens to interest rates or investment markets in the future, no matter how long you live.
In this guide to lifetime annuities, we take a look at how they work and how they compare to alternative options. You can also use our free lifetime annuity calculator to see how much income you could secure with an annuity - or call our team of Annuity Specialists today on 0800 652 1316 or request a call back. They’ll be able to talk you through your options and help you choose the best annuity for your needs.
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An annuity is a way to guarantee the level of income you receive from your pension savings in retirement. A lifetime annuity pays you a guaranteed annuity income for life. It means that your pension savings will not run out and your payments will continue until you pass away, no matter how long you live.
You can buy a lifetime annuity using some or all of the funds in your defined contribution (money purchase) pension pot. Your income will be largely based on the size of your pension pot and the annuity rate you are offered.
You can choose to receive your retirement income through an annuity on a monthly, quarterly, half yearly or annual basis. The frequency and timing of payments you choose may impact the amount you receive.
For example, if you receive payments annually in arrears, you’re likely to receive more money than by taking your income monthly. However, you may prefer to set your annuity up to pay a monthly income if you have been used to receiving your salary in this way.
A main benefit of a lifetime annuity is that changes to interest rates or investment markets won’t affect your income. You ‘lock in’ your income level, giving you the certainty of guaranteed annuity income for the rest of your life. However, this means you will not then benefit if interest and annuity rates increase in the future, or from any growth in the investment market.
Factors that may affect your annuity income include the size of your pension pot and the type of annuity you choose. The amount of retirement income you receive with a lifetime annuity also depends on the annuity rate you secure when you start your plan. The rate reflects your personal circumstances such as your age and it is also linked to interest rates.
The difference between the lowest and highest rate available from annuity providers can be surprisingly large. Also, your pension scheme provider may not offer the best available rate.
That’s why it’s so important to shop around and get the highest rate - this is the service that Retirement Line provides. We work with leading UK annuity providers, including household names and more specialist firms. It means we get you quotes from across the market to help secure you the best annuity rate and highest income.
For a better idea of how much annuity income you might receive, try our free annuity calculator. Alternatively, get in touch with our team of Annuity Specialists today on 0800 652 1316 or request a call back. They’ll be able to provide you with free, no-obligation annuity quotes from the UK’s leading annuity providers.
A conventional lifetime annuity assumes you have no particular health or lifestyle issues. However, most people are eligible for a higher annuity rate and more income through an enhanced annuity, based on their health and lifestyle. Even taking prescription medication that controls your high blood pressure or diabetes can increase the amount of income you achieve. Lifestyle choices such as smoking and drinking may also qualify you for an enhanced annuity.
Enhanced annuities offer more competitive rates based on the more than 1,500 qualifying health conditions and lifestyle factors. As these can shorten life expectancy, annuity providers assume they will be paying an income for less time, They make up for this by increasing the size of the annuity payments. Of course, many people with enhanced annuities go on to live long and healthy lives.
You can read more about enhanced annuities here. Alternatively, you can call us on 0800 652 1316 or request a call back and one of our Annuity Specialists will be happy to explain further and check your eligibility.
When you choose to take out a conventional lifetime annuity, you’ll have the option of taking either a ‘level’ or ‘escalating’ plan.
Inflation will mean that your level annuity income will have less buying power as each year passes. However, you may prefer this option as it can take many years for an escalating annuity to start paying as much as the level annuity.
You may even have to live beyond average life expectancy before income from an escalating annuity matches a level annuity, although this isn’t always the case.
Whether a level or escalating annuity is right for you will depend on multiple factors, including your age, your other income sources and your plans for retirement. For more information including quotes and guidance as to which option might best suit your needs, call our friendly team of Annuity Specialists today on 0800 652 1316 or request a call back.
A lifetime annuity pays you a guaranteed annuity income for the rest of your life. Another option is a fixed-term annuity that pays you an income for a set term of your choice. This is usually between one and 25 years. However, most people in our experience choose a term of between five and ten years.
Once you’ve purchased a level lifetime annuity, your income from it will remain the same for the rest of your life and you cannot change it. But with a fixed term annuity, you have the flexibility to reassess your financial situation at the end of your chosen fixed term.
You can for example, after taking any tax-free cash lump sum, leave the balance of your pension pot untouched, where it will grow at the annuity rate you secure. This will give you a guaranteed amount to use as you wish when the fixed term ends.
For example, you can use it to purchase another fixed term annuity or a lifetime/enhanced annuity, invest it in a drawdown scheme, or take some or all of it in cash (where it may be subject to income tax).
A fixed term annuity offers the flexibility that you may welcome as an alternative to a lifetime annuity. If this sounds of interest, please read our guide to fixed term annuities for more information or contact us to talk to an Annuity Specialist.
Lifetime annuities are designed to give you the freedom to choose the features that meet your needs. One of these features is a death benefit, where you choose a beneficiary to receive your income should you pass away.
There are three main death benefit choices with a lifetime annuity:
It’s important to note that choosing a death benefit option may reduce your own personal retirement income payments. That’s why we recommend talking through your options with our Annuity Specialists. They will be happy to provide annuity quotes comparing death benefit options and their effect on your income. Simply call our team today on 0800 652 1316 or request a callback.
If you’re now at or near the point where you can turn your defined contribution pension pot into an annuity, you might find that your current pension scheme or provider offers you an annuity plan.
However, you are likely to find the best annuity rates by looking elsewhere. In fact, the Financial Conduct Authority reported in 2016 that ‘80% of people who purchased an annuity via their pension provider could have received a better deal from another provider’.
Asking multiple annuity providers how much retirement income they could guarantee from your pension fund would be time consuming, and in fact many providers won’t deal with you directly. You may therefore prefer to ask an intermediary such as Retirement Line to do it for you.
If you have already received an annuity quotation from your pension scheme, we can compare this against quotes from other leading providers to help you exercise your ‘Open Market Option’.
Our Annuity Specialists will also take you through our specially developed health and lifestyle questionnaire. They will ask the right questions to see if you qualify for an enhanced annuity, and to obtain the highest income if you do. You could also benefit from preferential annuity rates we secure due to our position as the UK's largest pension annuity broker* and our close relationships with the UK’s best annuity providers.
Our service is provided without obligation. If we arrange an annuity for you, we will be paid a commission from the provider, which is taken into account when calculating their annuity rate.
We also have a Best Quote Guarantee where we'll send you a £250 M&S gift voucher if you receive a better annuity quotation on a like-for-like basis directly from another broker or provider¹.
Before setting up your annuity, you can take up to 25% of your pension fund as a tax-free lump sum. Any lump sum or income you then receive from the annuity is treated as taxable income in line with UK tax laws.
The death benefits mentioned above will be paid tax free to your nominated beneficiary if you die before age 75, but will be treated as their taxable income if you die at 75 or over.
Update – October 2024 Autumn Budget:
In the Budget of 30 October 2024, the government announced that pension savings will be considered part of someone’s estate and liable to inheritance tax (IHT) from April 2027. This will be within existing IHT rules: IHT is not payable by a person’s spouse or civil partner, and is only typically payable on estates over relevant IHT thresholds.
Another aspect of inherited pensions is income tax. Currently, if you pass away before age 75 any pension funds or annuity income your beneficiaries receive is free of income tax, whereas they are liable for income tax at their marginal rate if you die after age 75. Retirement Line’s understanding is that beneficiaries may still be liable for income tax on inherited pension income from April 2027, although it isn’t clear whether the ‘age 75’ rule will remain.
More information will be available following a government consultation period that will run until early 2025. We are monitoring this issue and will report on it once the matter is clarified. Please see our Budget report for more information: Budget 2024 – pensions brought into inheritance tax from 2027.
As with most financial decisions, choosing a conventional lifetime annuity brings certain risks as well as benefits, which we explain below.
At Retirement Line, we pride ourselves on providing an impartial annuity information service. Our Annuity Specialists will also be able to provide you with a comparison of market leading annuity rates from the UK’s leading annuity providers.
You could also benefit from preferential annuity rates we secure due to our position as the UK's largest pension annuity broker* and our close relationships with the UK’s best annuity providers.
For a free, no-obligation annuity quote, try our free annuity calculator. If you’d prefer to speak with an Annuity Specialist directly, you can call us on 0800 652 1316 or email us at info@retirementline.co.uk.
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Retirement Line Limited is Authorised and Regulated by the Financial Conduct Authority, FCA No. 726601. Retirement Line Limited is registered in England and Wales, registration No. 6976976. Registered Office: 52 Forder Way, Hampton, Peterborough, PE7 8JB
*Equifax Touchstone pension income and annuity sales figures 2018 to 2020. Matrix Financial Solutions Inc annuity sales figures 2021 to 2023.
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