Annuity options explained

Choose your income, payment frequency and death benefits and tailor your annuity to suit your needs.

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Annuity income options

An annuity payment can stay the same or increase each year. Increases will mean you start with less, but your income will be better protected from inflation. When choosing which option is right for you, you should keep in mind how your spending might change in retirement and how inflation increases prices over time.

Level income

You will receive the same amount of income each year. This could mean the buying power of your income is reduced over time because of inflation. For example, over the past 30 years the price of goods and services has roughly doubled. Goods and services costing £10 in 1993 would now cost you £20.39.

Increasing income

You can choose for your income to increase each year by a certain percentage. Typically, this is by 3% or 5%, but other options may be available.

Income that tracks inflation

Your income will move in line with the Retail Price Index (RPI). This means your income will retain its buying power by tracking inflation.

Annuity payment options

You can choose to receive your annuity income every month, every three months, every six months or once a year. You can also choose when in your chosen period you’ll receive it.

Paid in advance

You’ll receive your first payment immediately after your annuity is set up. And then at the frequency you’ve chosen. For example, on that date every month.

Paid in arrears

Once your annuity is set up, you’ll receive your payments at the end of your chosen payment period. For example, in 6 months’ time and every 6 months after that.

Annuity death benefit options

You could choose an annuity beneficiary payout option which will pay your annuity income to your loved ones when you die, potentially tax free.

Single life

Your annuity income will pay for the rest of your life, but will stop when you die.

Joint life

You choose how much of your annuity income would continue to be paid to your beneficiary (usually your spouse or partner) if you pass away first. For example, it could be 50%, 66% or 100% of your income. The higher the proportion, the lower your annual income will be.

Guarantee periods

Your income is paid for your lifetime, and is also guaranteed to pay for a minimum length of time. If you die within this time, the income will be paid to your estate or your beneficiaries for the rest of the guarantee period. Guarantee periods of up to 30 years are available. The longer guarantee period you choose, the less income you’ll receive initially but it could mean more is paid out overall.

Value protection

Value protected annuities return the original amount you used to buy the annuity, less any income paid, to your beneficiaries. Your annual income will be lower if you choose this option. But it means that at least all the money you used to buy the annuity will be paid out, no matter what.

Tax rules change and benefits depend on individual circumstances. The tax treatment of payments after death changes depending on your age when you die.

Thinking about when to start your annuity?

You may choose to delay buying an annuity in case fund values or annual income rises, however, you could miss out on more income by delaying. You can use this calculator to see the possible cost or benefit of delaying your annuity.

Annuity Delay Calculator
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To explore enhanced annuities in more detail click here.