Your Pension Annuity Options

If you’re married or have a partner, it is vitally important to consider what income they will have if you pass away before them. You can choose an annuity that continues to pay all or a proportion of, your pension income to a loved one for the rest of their life should you die before them. This is called a ‘joint-life annuity’. If you choose to provide this protection for a loved one then the amount that you receive each year will be smaller as a consequence.

A ‘single-life annuity’ provides a pension income just for you and will stop once you have passed away, unless you buy a guarantee, which we explain below. A ‘single-life annuity’ provides a higher pension income than a ‘joint-life annuity’ for while you are alive but doesn’t provide an income for any loved ones when you are gone.

You also have the option of protecting the remainder of your pension fund to pass onto your beneficiaries as a lump sum if you were to die without having received the full value of your pension fund, by opting to purchase value protection.

Although all lifetime annuities will pay you an income for the rest of your life, you can choose to have your pension income guaranteed for up to 30 years and so if you were to die soon after buying your annuity, your pension income will carry on being paid to your beneficiaries until the end of the guarantee period.

The guarantee period starts at the same time as your annuity, so for example, if you choose a 5 year guarantee and die after 3 years, the guarantee would be paid to your beneficiaries for 2 years. This pension option will reduce the regular income that you receive.

When you buy an annuity you can select the intervals at which you would like to receive your pension income. This can be monthly, quarterly, half-yearly or annually. You can also choose whether you would like to be paid at the beginning or at the end of each interval.

As a rule, the later you receive your payments, the larger your income will be. People may choose to receive their pension income monthly in arrears, as this is what they have become used to during their working lives.

Most customers choose a pension income that is fixed for life, meaning that they receive the same amount each year. This doesn’t provide any protection against inflation, so income relative to the cost of living may be reduced over time.

If this concerns you, you can choose to protect your pension income against inflation by choosing an income that will increase over time. Whilst you will receive a smaller amount to begin with, your pension income will increase each year. You can choose for your payments to increase by 3%, 5% or in line with the Retail Price Index.