Annuity options: personalising your annuity for your needs

Written by Retirement Line Updated: 23rd January 2025

When you look into how annuities work, you’ll find you have lots of different options to choose from. These options mean you can shape your annuity to suit your circumstances and needs, for example adding death benefits so that a loved one receives an income after you pass away.

At Retirement Line, we are dedicated to helping you navigate the variety of annuity options available. We have a dedicated Annuity Guidance Team on hand to take you through your options, helping you find a solution that matches your financial goals. If you wish, you can start to explore your options on this page and across our website.

On this page:

• What is an annuity?

• What types of annuities are available?

• Annuity income options: level or escalating?

• Annuity death benefit options

• Can annuity options affect my annuity rate?

• Other annuity options to consider

• The importance of shopping around

• How do I find out which annuity option is best for me?

• What should I do next?

If you would prefer to talk to someone about your options, call our team of Annuity Specialists 0800 652 1316 or request a call back. You can also use our free annuity calculator for an estimate of how much guaranteed income you could secure with an annuity.

What is an annuity?

An annuity is a financial product that allows you to turn your pension savings into a regular, guaranteed income. You will have stability and peace of mind, as your income is unaffected by investment or interest rate fluctuations.

Income can be paid either for life or for a set number of years. If you wish, your annuity can continue paying an income to your partner or other beneficiary after you pass away.

You can set up an annuity from some or all of your defined contribution pension scheme savings from age 55 (rising to 57 from April 2028). 

What types of annuities are available?

There are three main types of annuities, each designed to fit different priorities and financial goals:

• Conventional lifetime annuity. Provides a guaranteed income for life, offering stability throughout your retirement. You can opt for a fixed income or choose for payments to increase over time. Read more about conventional lifetime annuities here.

• Enhanced lifetime annuity. Offers a higher guaranteed income for life if you have certain health conditions or lifestyle factors. Conditions such as diabetes, high cholesterol, or a history of smoking or drinking could qualify you for increased payments. Read more about enhanced lifetime annuities here.

• Fixed term annuity. Provides a regular income for a set number of years with the option to receive a guaranteed lump sum payment at the end of the term. Or, you may decide not to take an income, and instead leave your pension fund to grow at a guaranteed rate for the fixed term. Read more about fixed-term annuities here.

Annuity income options: level or escalating?

When purchasing an annuity, you can choose either level or increasing payments:

• Level income. This option provides the same income for the duration of your annuity payments, offering predictability and consistency for managing your finances. It does not account for the impact of inflation, so the purchasing power of your income will decrease over time. However, the starting income will be higher than the escalating option, so this option may be suitable for those prioritising the biggest possible income during the early years of retirement.

• Escalating income. This option will see your income increase annually, either by a fixed percentage (such as 3% or 5%) or in line with the Retail Prices Index (RPI). This helps to maintain your purchasing power as living costs rise. Read more about inflation protection here.

Annuity death benefit options

When arranging your annuity, death benefit options allow you to provide additional financial security for your loved ones. These options reduce your own annuity income, but offer valuable peace of mind. They also mean that your pension pot isn’t "lost" should you pass away soon after retirement. 

There are three main death benefit options:

• Joint life annuity. When you pass away, a percentage of your income continues to be paid to a beneficiary for the rest of their life. This option might be suitable for couples who rely on one another's income to maintain their standard of living.

• Guarantee period. A guarantee period ensures that annuity payments will continue for a minimum number of years, regardless of whether you pass away. If you die within the guarantee period (e.g., 5, 10, or 20 years), your beneficiary or estate will continue to receive the annuity income for the remainder of that term.

• Value protection. This allows for the remaining balance of your pension fund to be refunded to your beneficiaries if you pass away. If you pass away and the total annuity payments made to date are less than the original pension fund, the difference is refunded as a lump sum to your beneficiaries.

Read more about annuity death benefits.

Other annuity options to consider

There are some other options to consider when arranging your annuity:

• Your 25% tax-free lump sum. You can usually take up to 25% of your total pension pot as tax-free cash once you reach 55 years old (57 from April 2028). The more tax-free cash you take, the less money is left to buy your annuity. However, as annuity income is taxable at your marginal rate, you may decide to take your full 25% tax-free allowance before buying your annuity. Read more about tax-free cash here.

• Payment frequency. You can choose how often you receive your income, such as monthly, quarterly, half-yearly or annually. This choice can help align your annuity income with your budgeting or lifestyle preferences. Read more about income payment frequency here.
  

Can annuity options affect my annuity rate?

Yes, the annuity options and the type of annuity you choose can each have an influence on the rate and resulting income you’ll receive. For instance, qualifying for an enhanced annuity will boost the annuity rate you can achieve; whereas a joint life or escalating annuity will typically see you being offered a lower rate and starting income. 

When you look at quotations from annuity providers, it is important to carefully weigh up the pros and cons of each annuity option to decide what will work best for your financial goals.

Below is a simplified guide to explain how annuity types and options can affect the rate you are offered:

• Single life annuity. As this option provides guaranteed income for your lifetime only, it typically offers the highest starting income compared to joint annuities, as payments are not designed to cover another individual.

• Joint life annuity. Including a joint life feature typically lowers your starting annuity income, as payments may continue for longer than with a single life annuity.

• Enhanced annuity. An enhanced annuity offers higher rates if you have one or more qualifying health conditions or lifestyle factors. This is because these can indicate a potentially shorter life expectancy, allowing providers to offer a larger income.

• Level annuity. Pays the same amount throughout your retirement and offers the highest initial income. However, over time, its real value may decrease due to inflation.

• Escalating annuity. While the starting annuity rate and income is lower than a level annuity, the increases help maintain your purchasing power as costs rise during your retirement.

• Guarantee period. Adding a guarantee period may slightly reduce your initial income to account for the extended payment period. 

• Value protection. As with the other death benefit options, this feature reduces your starting income to cover the additional benefit.

• Fixed term annuity. As this provides guaranteed income for a specific number of years rather than for life, you can choose to access a higher income over a shorter term. 

Our friendly Annuity Specialists are here to explain your different annuity options and obtain quotes from leading UK annuity providers. They work hard to find the right option for your needs, and quotes at the best available annuity rates. Once you are confident in your decision, they’ll arrange everything for you, even filling out the paperwork on your behalf. 

If you’re ready to discover more about your annuity options, call us today on 0800 652 1316, request a callback, or email us at info@retirementline.co.uk. 

The importance of shopping around

Annuity rates and product features vary across providers, and the difference can be significant. Importantly, you do not have to purchase your annuity from the provider that currently holds your pension fund. Instead, you have a legal right called your Open Market Option to shop around for a better deal. This ensures you find the best plan for your needs and get the most competitive rate. 

Once purchased, annuities cannot typically be changed, making it essential to find the best fit. Additionally, your current provider may not offer all the annuity options you can access on the open market. Shopping around will help you to access the right combination of features and options, such as death benefits, inflation protection, or higher rates through enhanced annuities.

What should I do next?

• Contact us. Speak to an Annuity Specialist for tailored guidance of all your annuity options.

• Get quotes. We’ll compare the best rates from the UK’s leading providers to discover how much extra income we could achieve for you.

• Decide with confidence. If you decide to go ahead, we’ll arrange everything for you and guide you through every step of the process.

We hope you found this summary of your annuity options useful. If you want to talk to someone about annuities in more depth, explore current annuity rates or which options would work best for your financial needs, call us today. 

Our Annuity Specialists are here to explain everything to you in a jargon-free language, giving you as long as you need to explore your options. Speak to our friendly team today by calling 0800 652 1316 or request a free call back here.

Click here for your free, no-obligation annuity quote