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What is a Lifetime Annuity?

An annuity is a way of converting a lump sum, usually a pension fund, into an income for the rest of your life. It provides a guaranteed regular income until you die. Unlike other investments, an annuity can not be used up - however long you live.

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This pays the same income each year for the rest of your life. The main drawback of a level annuity is that what you can buy with the income provided falls over the years through inflation but, level annuities pay a higher starting income compared to increasing annuities


This type of annuity pays an increasing income each year. There are 2 main choices:
  1. Escalating annuities - these are guaranteed to increase each year, normally by 3% or 5% - you can select the percentage increase you require at the outset.
  2. RPI Linked annuities - these are adjusted each year to reflect changes in the Retail Prices Index.
Investment Linked

This means that your money is invested and the income you receive is determined by investment performance instead of a fixed annuity rate. This type of annuity will give you the chance of a higher income but involves extra risk.
how much income will I recieve
The amount of income an annuity will pay depends on:
  1. The amount of money you have in your pension fund
  2. Your age, sex and health at the start of the annuity
  3. The benefit options that you choose
benefit options
Spouses pension

If you have a spouse or civil partner, you can opt to provide a pension for them after your death. If you choose to do this, you can select the level of spouses pension at 50% 66% or 100% of your pension income.


You can guarantee the annuity you choose for a specific period, usually 5 or 10 years. This means that if you die within the guarantee period, the annuity provider will continue to pay your pension to your heirs until the expiry of the guarantee period.

Capital Protected

Your annuity can be capital protected. This means that in the event of your death, the capital you originally invested in your annuity fund will be repaid to your estate, less the pension payments that have been made to you during your lifetime. A tax charge may apply.

Benefits paid in advance/arrears

You can choose whether to receive your payments in advance or arrears. For example, If you take your annuity out on 1st August and receive your first pension payment on 1st August, you are being paid in advance. If you chose to receive payments in arrears, you would not receive your first payment until 1st September. Annuities paid in arrears pay slightly more than those paid in advance.

With/without proportion

This option only applies if you opt to receive payments in arrears. When you die, an annuity paid with proportion would pay an amount proportionate from the last payment until the date of death. An annuity paid without proportion would make no further payment.


This option applies where a spouses pension and a guarantee is required. If you select a ‘with overlap’ option and die during the guarantee period, the spouses pension would be paid immediately in addition to the remaining guaranteed pension. ‘Without overlap’ means that the spouses pension will start at the end of the guarantee period.
This is an alternative to an annuity. The money in your pension fund remains invested, but you can take some of the money out at regular intervals to pay for your retirement. The amounts you can withdraw are limited by the government so you do not run out of funds.

Potential benefits of drawdown are flexibility, potential for increased income and better death benefits however, the main drawback is that because your pension fund remains invested, it remains at risk.

This option is not for everyone and requires specialist advice, which we are happy to provide. Please contact us for further details.
the third way
As well as the two options of annuity or drawdown, a `third way` is evolving, which provides a mixture of some benefits from both annuities and drawdown.

The Living Time Contract offers a fixed income for a fixed period of time and a guaranteed fund at the end of this period with which to choose the best option at that time.

This flexibility is particularly useful, because you do not have to permanently commit to options like indexation, a spouses pension or death benefits - the choices you make will only apply for the fixed annuity period and can be amended before entering into the next option you choose.
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