Should I choose a single life or joint life annuity?

03 August 2024

If you have a spouse or civil partner and are considering an annuity,  a crucial question arises: should you opt for a single life annuity or a joint life annuity? With a joint life plan, your beneficiary would continue to receive an income after you die.

This decision doesn’t just impact your beneficiary’s financial future, it also affects how much income you receive from an annuity in your lifetime. 

To help you explore these two options and decide which could be best for you, we’ll be talking about the following in this guide:

• Understanding single life annuities

• How do joint life annuities work?

• Joint life annuities: is health a factor?

• Can I name one of my children as a beneficiary?

• Single life vs joint life annuity

• Other forms of annuity death benefits

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If you’re over the age of 55 and would like specialist guidance on your options for a single life or joint life annuity, our Annuity Specialists are also here to support you. They can help you explore your options, compare annuity rates and produce as many quotations as you need to see what might work best for you. Call us now on 0800 652 1316 or request a free call back by clicking here.

Understanding single life annuities

A single lifetime annuity provides a regular guaranteed income for the rest of your life that typically ends when you pass away. A single fixed-term annuity provides an income for a set number of years, or until you pass away if that’s before the end of the term. 

The main advantage of a single life annuity lies in its potentially higher income payments. The annuity provider doesn’t have to factor in paying a beneficiary after you pass away, so they can pay you more income instead.

So, if you are single with no dependents and aren’t concerned about leaving an income to a beneficiary, this option might work well for you. Even if you are in a couple and/or have children, you may decide to maximise your income while you are alive. For example, you may feel that enough provision for your beneficiaries has been made elsewhere.

But remember that the main disadvantage of a single life annuity is that if you pass away after arranging your annuity, your annuity payments typically stop. As a result, your spouse, partner or other potential beneficiary will not benefit from the money you have saved into your pension during your lifetime.

However, there are ways to add annuity death benefits to single life annuities to protect your hard-earned money. These death benefits enable your loved ones to receive some of your pension fund if you pass away within a certain timeframe. Please see “Other forms of annuity death benefits” below for more information.

How do joint life annuities work?

Joint annuities are designed to provide a consistent income stream not only for you but also for your partner, spouse or other beneficiary after your death. This option ensures that, even in the event of your passing, they receive a portion of your annuity income. 

Joint life annuities are typically structured to provide a percentage of your original annuity income to your surviving spouse, partner or other dependent.

For example, you might opt for a 50% continuation of your income after your death – known as a 50% joint life annuity. Or, you might want the full amount to continue going out – a 100% joint life annuity. Some people choose for a much smaller income to be paid after they pass. 

It ultimately depends on your circumstances, such as what you think your potential beneficiary will need to live on and how much other income they will have available. For example, will they have their own pension savings or income, or access to savings or life insurance should you die before them?

When you arrange a joint lifetime annuity, the percentage of annuity income you select will continue to pay out for the rest of your loved one’s life. However, if you select a joint fixed term annuity, payments only continue until the end of the annuity term.

To sum up,  joint life annuities typically offer a lower income for you while you are alive compared to single life annuities. However, they provide valuable peace of mind by safeguarding the financial well-being of your beneficiary. 

Joint life annuities: is health a factor?

When you receive your annuity quotations you may find that you qualify for an enhanced annuity. If you do, you could receive a higher annuity income for life if you have – or have had – certain medical conditions. High blood pressure, diabetes or even a history of smoking could see you achieving more income.

But what happens if you choose a joint annuity and one of you qualifies for an enhanced annuity but the other does not?

• If your partner qualifies for enhanced terms then your annuity provider may offer you an enhanced joint life annuity. This is because they take the health and lifestyle of both people into account. 

• If your partner is healthy and does not qualify for enhanced terms – but you do – then you may find that your provider reduces the level of extra income you receive. This is to balance out your partner or dependent’s longer life expectancy.

Can I name one of my children as a beneficiary?

You can choose one of your children or even grandchildren as your beneficiary with a joint life annuity, as long as your annuity provider allows it.

Prior to the UK pension reforms of 2015, the beneficiary of annuity death benefits had to be your spouse, legal civil partner or a qualifying dependant. But since the reforms, you can choose whoever you wish to be a beneficiary, as long as your annuity provider agrees.

However, due to the typically larger age gap between a parent and a child, some annuity providers may not agree to naming a child as a beneficiary on a lifetime annuity. This is because the annuity is likely to pay out for much longer than if they were in the same age group as you. 

If your provider does agree, the starting income offered to you may be much lower. You will need to consider the impact on the income that you are offered when you explore this option.

Single life vs joint life annuity

Still unsure whether a single life or joint life annuity would work best for you? Don’t worry, our annuity specialists can provide all the free information and quotations you need to make the right decision for you. But in the meantime, here are some points to consider when weighing these two options up.

Your dependents. If someone is financially dependent on you, a joint life annuity could provide essential support when you are no longer around. A beneficiary could be your spouse, civil partner, a child, or someone else you nominate.

Your retirement goals. If you choose a joint annuity then the amount of income you are offered will be smaller than that of a single annuity. You may therefore be better able to meet your retirement goals while alive with a higher-paying single life annuity.

How much your beneficiary needs. When you pass away, your beneficiary may not need the full amount of income that your annuity pays during your lifetime. If they have funds of their own, for example, you could consider taking a higher income during your lifetime and then reduce the payouts to 50% or even less after your death.

Your age and health. Annuity providers will look at the age and health of both you and your beneficiary (in a joint life annuity) when determining the amount of annuity income to offer you. For instance, some providers may offer you less income if your beneficiary is younger than you are. This is because they take into account how long they might have to pay an income after you die.

Each annuity provider has their own approach to joint life annuities, with varying factors having a potential impact on your annuity income. It makes shopping around for the most competitive plan essential when buying an annuity. This is where Retirement Line’s annuity service can help - doing the hard work for you, so you can find the right plan for you and your loved ones.

Other forms of annuity death benefits

Unlike a joint life annuity, your single life annuity payments will by default stop when you pass away. However, there are ways to add annuity death benefits to single life annuities to protect your hard-earned money. These death benefits enable your loved ones to receive some of your pension fund if you pass away within a certain timeframe.

An income or cash lump sum from your annuity may still be paid to your estate or beneficiaries if you have either of the following in place:

• You pass away with value protection. In this case a lump sum will be paid to your chosen beneficiaries, minus any payments that have already been made. For instance, let’s say you purchase a single lifetime annuity with £100,000, taking £7,000 annual income and you pass away after two years. The remaining £84,000 could be paid to those you nominate as a beneficiary.

• You die within your guarantee period. Payments will continue to be made until the end of the guarantee period to your estate or person/s you name on the policy. If you pass away before turning 75 then these payments would be tax-free. If you are 75 or older then the payments would be subject to income tax at their marginal rate.

You can read more in our guide to annuity death benefits. You can of course also contact our annuity specialists for information, guidance and quotes from leading providers to illustrate your options.

Seek professional guidance

If you are planning to retire in the next few months then now may the ideal time to seek professional guidance over whether to choose a single life or joint life annuity. Planning ahead not only brings you peace of mind but also contributes to a more secure financial future for both you and your beneficiaries.

For trusted guidance, make sure you speak to our annuity specialists. They can carefully explain all of your options to you – including single and joint life annuities – when you use our free annuity guidance and quotation service.

As part of our annuity service, we will explore the competitive annuity rates currently available, and provide as many free quotations as you need to compare annuity plans. If you decide to go ahead, we’ll guide you through every step of the process, even completing your paperwork on your behalf. 

Don’t delay, speak to our friendly team today on 0800 652 1316 or request a free call back by clicking here.

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