How long is an annuity term?

Written by the Retirement Line Team

You can choose the term of your annuity

When you choose to turn your pension pot into income with an annuity, you have flexibility regarding the payment term of the annuity.

You have options for the annuity term while you are alive, and for continuing payments to a beneficiary after you die. On this page, we’ll look at your options for deciding upon the term of your annuity. 

For illustrations showing your options, please talk to a member of our Annuity Guidance Team. As the UK's largest pension annuity broker* we talk to thousands of people a year about their options, including the term of their annuity. Please call us on 0800 652 1316 or request a call back for the help you need.

On this page:

• The annuity term while you are living.

• The annuity term after you die.

• Talk to Retirement Line about your annuity options.

The annuity term while you are living

The first choice to make when setting up an annuity concerns the length of the annuity term for payments while you are alive. The choice is relatively straightforward: 

Lifetime annuity. This pays you an income for the rest of your life. You will usually receive a guaranteed level of income, regardless of what happens to interest rates or investment markets in the future. You may also qualify for extra lifetime income with an enhanced annuity. These pay more on account of health issues or certain lifetime choices. 

Fixed term annuity. This can pay you an income for a fixed term. Again, your income during that term is usually guaranteed, regardless of interest rate changes or ups and downs of investments. You can also ensure that at the end of the term you have money available called a Guaranteed Maturity Amount. You can take this as taxable cash, buy another annuity, or choose another retirement income option such as drawdown.

Selecting the right term of your annuity is very much a personal choice. You will want to take into account factors such as other sources of retirement income, your health and plans for your future.

A fixed term annuity offers more flexibility and typically will pay a higher level of income. But on the other hand, a lifetime annuity could pay you for many more years, so could pay you more in the long term.  

The annuity term after you die

You aren’t limited to choosing the term of annuity payments you’ll receive while you are alive. You can also choose for payments to continue should you die before a chosen beneficiary.

Fixed term annuities set up on a joint life basis typically include built in death benefits. They continue to pay your beneficiary an income for the remainder of the annuity term should you pass away before your plan ends. 

If you’ve chosen to receive a Guaranteed Maturity Amount at the end of the fixed term, this will also be paid to your beneficiary when the annuity term ends. 

Lifetime annuities are by default arranged so that payments stop when you die.  The problem with this is if you die soon after arranging your annuity, the majority of the money you have saved in your pension is lost. This can leave anyone who relies on your annuity payments (your wife or husband for example) at a loss for money.

However, there are simple solutions you may wish to consider:

1 - A joint life annuity to pay your beneficiary an income until they die

With this style of lifetime annuity, income payments continue to be paid to your beneficiary after your death until they pass away.

You choose how much they receive: either the same as your annuity income, or a percentage of it. The more income you choose your beneficiary to receive, the more it reduces the level of your own income payments.

Read more about joint life annuities

2 - A guaranteed period to pay your beneficiary for an agreed term

You can set up your annuity so that payments continue to be paid to a beneficiary for what’s known as a ‘guaranteed period’. The guaranteed period can be for any length of time up to 30 years, and starts from the date your annuity is set up.

For example, let’s say someone chooses a 20-year guaranteed period and dies ten years after the annuity begins. In that case, their beneficiary will receive income for another ten years. 

As with a joint life annuity, choosing to include a guaranteed period in your lifetime annuity will reduce the size of your own income payments. 

Read more about guaranteed periods

3 - Value protection

Another option is to add value protection to your annuity. This means your annuity provider will pay a lump sum to your chosen beneficiary. The lump sum is calculated by taking the total income you have received away from the purchase amount of your annuity. You can choose to protect all of your remaining fund, or a percentage of it. The more you protect, the less income you’ll receive from your annuity while you’re alive.

Read more about value protection

Who can receive income after I die?

You can choose for anyone to be the beneficiary of your annuity when you die. You can nominate the person directly with your annuity provider, or in your will.

Talk to Retirement Line about your annuity options 

If you are considering an annuity to turn money in your pension into retirement income, our friendly specialists are here to help. They will explain your options and explore how much guaranteed income you could achieve from your pension fund.

They will also be happy to show you a comparison of annuities of different terms. This can include options for paying a beneficiary after you die, to help you make an informed decision.

You can speak to our team today by calling freephone 0800 652 1316 or request a call back. Alternatively, use our annuity calculator for an instant estimate of how much annuity income you might expect to achieve.